The directory map for the Northfield Square Mall in Bourbonnais, Illinois, has three glaring spaces where large department stores once stood. Soon there will be a fourth vacancy, now that J.C. Penney is liquidating stores after filing for bankruptcy.
With so much empty space and brick-and-mortar retail in the midst of seismic changes even before the pandemic hit, the mall’s owners have been talking with local officials about identifying a “higher and better use for the site,” though they have declined to elaborate on what that could be.
“Filling in one anchor space, generally, is doable,” said Elliot Nassim, president of Mason Asset Management, which co-owns the Northfield Square Mall and dozens of other enclosed shopping centers. “But once you get hit by two others and you’re dealing with three anchor closures, that’s usually where we become a little more likely to put it into the bucket of a redevelopment.”
The standard American mall — with its vast parking lots, escalators and air conditioning, and an atmosphere heavy on perfume samples and the scent of Mrs. Fields cookies — was built around department stores. But the pandemic has been devastating for the retail industry, and many of those stores are disappearing at a rapid clip. Some chains are unable to pay rent; and prominent department store chains, including Neiman Marcus, have filed for bankruptcy protection. As they close stores, it could cause other tenants to abandon malls at the same time as large specialty chains like Victoria’s Secret are shrinking.
Malls were already facing pressure from online shopping, but analysts now say that hundreds are at risk of closing in the next five years. That has the potential to reshape the suburbs, with many communities already debating whether abandoned malls can be turned into local markets, office space or even affordable housing.
“More companies have gone bankrupt than any of us have ever expected, and I do believe that will accelerate as we move through 2020, unfortunately,” said Deborah Weinswig, founder of Coresight Research, an advisory and research firm that specializes in retail and technology. “And then those who haven’t gone bankrupt are using this as an opportunity to clean up their real estate.”
Weinswig said the malls that are able to withstand the current turmoil will be healthier — better tenants, more inviting and occupied — but she anticipated that about 25% of the country’s nearly 1,200 malls were in danger.
Most retailers that have filed for bankruptcy are closing stores but plan to continue operating.
Department stores account for about 30% of the mall square footage in the United States, with 10% of that coming from Sears (which filed for bankruptcy in 2018) and J.C. Penney, according to Green Street Advisors, a real estate research firm. J.C. Penney, which declined to comment, has said store closings will start this summer and could eventually number as many as 250. Green Street forecast in April that more than half of all mall-based department stores would close by the end of 2021.
That will have significant effects beyond reduced customer foot traffic. Many small mall retailers have clauses in their leases — so-called co-tenancy clauses — that allow them to pay reduced rent or even break the lease if two or more anchor stores leave a location.
“At a lot of lower-quality malls — where maybe there already is a vacant anchor, where you’ve got the Sears box that closed two years ago and not yet filled it, and now your J.C. Penney box is closed — that is going to cause that mall to likely lose a lot of tenants and possibly even lose its competitive positioning very quickly,” said Vince Tibone, a retail analyst at Green Street.
Tibone said he was pessimistic about the ability of most malls to fill vacant spaces, especially during the pandemic. Entertainment options like Dave & Buster’s are off the table, for instance.
“The reality is, there are going to be dark boxes for some time,” he said.
And then there are customers, who already shop online in huge numbers and may not be all that eager to return to enclosed emporiums where they will be surrounded by other people.
“If there’s a perception out there that people are safer outside and less safe inside, that’s not great,” said Matthew Lazenby, chief executive of Whitman Family Development, which manages the luxury open-air Bal Harbour Shops outside Miami.
Source: SFBJ
