Up to a quarter of American malls are expected to close in the next three to five years. That’s what Dianne Crocker (picture), lead analyst at real estate intelligence provider LightBox, says. The decline in shopping malls, she explained, was due to a long-standing trend away from brick-and-mortar real estate and towards e-commerce that spiked during the pandemic.
While analysts have been predicting malls deaths for nearly a decade, Crocker also gave some clues as to what those giant swaths of malls look like Commercial real estate will be reused. She was optimistic and highlighted how these spaces can become new centers of urban and suburban life.
Crocker explained the considerable opportunity for communities and Mortgage professionals presented through conversion of shopping centers. The live-work-play development model has been warmly welcomed by communities and is attracting significant capital from private equity firms targeting distressed US commercial real estate. Last mile distribution models are also becoming increasingly popular, although industrial use can sometimes have a negative impact on the communities involved. Even so, Crocker believes that given the plethora of positive models available for mall redevelopment, commercial real estate stakeholders have a ton of options.
“There’s so much capital with US commercial real estate and its crosshairs,” said Crocker. “The slowdown this pandemic brought to market has created pent-up demand from people looking to put money into real estate. I would say a lot of the capital goes to private equity firms. Real estate mutual funds have a lot of capital that they want to place in a very short time, and to some extent there are also foreign dollars. “
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Crocker noted that some key factors are driving malls closings. Malls anchored in grocery stores or malls with medical services, pharmacies, gyms and lifestyle facilities are more likely to survive in their current form. The retail-oriented shopping malls anchored by well-known department stores are more likely to be used for other purposes.
While live-work-play new developments and last mile fulfillment centers are popular conversion models for e-commerce, Crocker emphasized that the damage caused by the COVID-19 pandemic is not yet fully understood. Institutional capital is currently focusing its investments on the safest assets, the suburban metropolitan areas, which have seen significant growth over the past year. That means more suburban cities like Charlotte NC., Phoenix AZ. And Dallas TX.
It’s not just private equity firms buying out old malls, however. Crocker cited the example of Epic Games, developers of the hugely popular Fortnite game. It recently acquired an 87-acre former mall in Charlotte, NC. to serve as the new global headquarters. Refurbishments from large employers like Epic are particularly well received by communities that often see the impact of such an investment.
Community buy-in will be critical to many of these projects as developers and investors may face zoning and administrative hurdles. The live-work-play model, according to Crocker, is usually very much welcomed by communities, as are redevelopments that create high-paying jobs like a corporate campus. Industrial developments, on the other hand, are not always that popular. Many communities don’t want the mall, once a commercial and entertainment hub, to be converted into a warehouse. Even so, investment math for these properties sometimes dictates that an Amazon fulfillment center is their only salvation.
As mortgage professionals look for mall repurposing opportunities, Crocker stressed the numbers have to work out. Investors are excited about these malls but have been forced to be cautious by the pandemic. She went on to stress that cities that have grown in the pandemic and boast of suburban living that is currently so much in demand will be prime targets for investment. Mortgage professionals looking to facilitate these deals need to study the eccentricity of each shopping mall and community to see what benefits it will bring to an investor. Despite the caution, she believes these malls represent a great opportunity for mortgage professionals across the country.
“Commercial real estate is an ecosystem,” said Crocker. “And I think we are entering an exciting age of innovation and adaptive reuse. This will provide a lot of exciting opportunities for mortgage professionals across the board. “