Retailers' Call Centers Bring Life to Dead Mall Space

By Esther Fung Features Dow Jones Newswires

A giant home-goods retailer is moving into an indoor mall in west of Orlando this summer, but it isn't opening a store.

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Instead, Bed Bath & Beyond Inc. is leasing roughly 75,000 square feet at West Oaks Mall for a call center, taking up about a third of the space that was formerly occupied by a Belk department store.

While retailers look to pare back traditional bricks and mortar retail space, some landlords are looking to repurpose struggling centers by offering portions of them for back-office facilities to support orders placed online.

Malls could also meet a rising industrial real estate demand from e-tailers and logistics companies that are scouting for locations closer to where people live as they compete to offer speedier delivery to customers.

The moves also show how internet retailing and changing shopping preferences are beginning to reshape real estate and local labor markets. By walling off sections of previously vacant retail space, landlords are making more efficient use of their properties even as they create new employment centers and alter the look and feel of venues that have been centerpieces of communities.

Private-equity firm Moonbeam Capital Investments LLC, which owns West Oaks Mall, said it is transforming the 1.1 million-square-foot property -- which has a 14-screen AMC movie-theater complex and anchor tenants such as J.C. Penney and Dillard's -- into a mixed-use office and retail building.

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Before the recent deal with Bed Bath & Beyond, Conduent Inc., formerly the services business of Xerox Corp., leased almost half of the 144,907 square feet previously occupied by Sears for a back-office customer-service center to process toll transactions for the Florida Department of Transportation. Together with Bed Bath's center, these offices will employ as many as 1,000 people when fully staffed, Moonbeam said.

"It's a little more reassuring that we're going to get paid regardless of how well they are doing," said Steven Maksin, founder and chief executive officer of Moonbeam Capital.

The firm owns eight enclosed malls across the U.S., as well as open-air shopping centers, outlets, residential and hotel assets, and specializes in buying and repositioning distressed properties.

Moonbeam had bought the struggling mall from foreclosure proceedings in 2012 for $15.9 million and had been weighing options for the property. At that time, the single-story mall was 60% occupied.

Mall landlords need to provide renderings to help prospective office tenants view how doors, walls and windows might look in a space that is still a store, said Casey Barnes, vice president of business development at Orlando Economic Partnership, a not-for-profit, public/public partnership in Central Florida.

Mr. Barnes said he had toured the Sears store at West Oaks Mall years ago with a firm that was looking for space for its software engineers but in the end decided on a regular office building. "There were lawn mowers in the store," said Mr. Barnes, who added that the tenant couldn't visualize the space for office use.

Apart from West Oaks, the arrival of office workers, in particular from the technology sectors, has helped revitalize once-bustling retail spots such as Church Street Station in Orlando that had suffered in the 2000s after Disney and its surrounding real estate took a lot of business, Mr. Barnes said.

West Oaks Mall opened in 1996 with four department-store anchors. It was the dominant shopping mall for a while, but suffered during the recession and from competition from a newer, open-air shopping center about a 17 minute-drive away.

"Is it better for me to find 20 3,000 square-foot tenants or is it better to find one tenant to take the whole space that would pay more money?" asked Mr. Maksin. "Retailers are not earning as much as before."

Mr. Maksin says businesses like the idea of call centers in malls because the centers have big parking lots and food and beverage options already available for the staff. Office towers often have tighter configurations that can pack more people, but that also triggers greater demand for parking.

Bed Bath & Beyond, which also has a call center in a building next to Layton Hills Mall near Salt Lake City, didn't respond to requests for comment.

Some real estate consultants say putting a call center in a mall to fill up space is generally seen as a short-term fix that hurts the long-term viability of the building as a retail center, since stores live off each other.

"It's like pulling roof shingles off your house to put in a fireplace," said Jim Fagan, senior managing director at Cushman & Wakefield of Connecticut Inc., overseeing the Stamford, Conn., Westchester County and New York offices.

Write to Esther Fung at esther.fung@wsj.com

(END) Dow Jones Newswires

April 25, 2017 05:44 ET (09:44 GMT)