Big Mall Operator Bets That America Needs a New Mall
On a bright August morning, GGP Inc., one of the country's largest mall operators, did the unthinkable. It broke ground on a new shopping mall, a seemingly risky bet in a world where retailers are closing hundreds of stores and malls across the country are trying to reinvent themselves.It could be one of the last enclosed malls ever built in the U.S.
"We're not building any more," said GGP Chief Executive Sandeep Mathrani. "This could be it for a long period of time."
Other real-estate developers, landlords and analysts agree. "No one is building enclosed regional malls today," said Stephen Lebovitz, chief executive of mall owner CBL & Associates Properties Inc. "All the development is redevelopment of existing centers."
With the SoNo Collection, as the new mall will be called when it opens in 2019, GGP saw an opening to fill what it deemed an underserved area in Norwalk, Conn., about 50 miles north of New York City.
The $525 million project, which the mall operator began planning in 2013, will be anchored by Nordstrom and Bloomingdale's and house 80 to 100 smaller stores, including as many as 10 restaurants and potentially a health club. One change from malls of the past: there will be far fewer apparel retailers. GGP has pre-leased about 60% of the available space.
"There are very few markets in America that have holes," said Mr. Mathrani, whose company owns 126 retail properties.
Norwalk is part of Connecticut's Gold Coast, so named for the affluent towns along the Long Island sound. A third of the households within a 15-mile radius of the project have a net worth of $500,000 or more, according to ESRI, a geographic mapping company.
The new mall could be bad news for other nearby centers. DJ Busch, an analyst with real-estate research firm Green Street Advisors, expects the SoNo to pull shoppers from malls in Stamford, Danbury and Trumbull, all of which are located in the same Fairfield County.
"It's not like the area is aching for new retail," he said.
Mr. Mathrani said the SoNo will have higher quality stores than those malls. He expects the new mall's sales to reach $800 a square foot, which would put it among the top performing malls in the country.
"It will have some impact on our mall as it will on everything in the market," said William Taubman, the chief operating officer of Taubman Centers Inc., which owns the Stamford Town Center.
But he added that the SoNo's real competition will be the tony shopping districts of Westport and Greenwich, which include a Saks Fifth Avenue department store and specialty retailers such as Vince and Theory.
A spokeswoman for Macerich Co., which owns the Danbury Fair Mall, said its trade area has minimal overlap with the SoNo. A spokeswoman for Westfield Corp., owner of the Trumbull mall, declined to comment.
U.S. mall development peaked in the 1970s and has steadily declined. Just six large malls were built between 2006 and 2015, compared with 54 during the previous decade, according to Green Street.
Mr. Mathrani said the death of shopping malls has been exaggerated. GGP has leased nearly 10 million square feet so far this year, up from 9.5 million for all of 2016. But he concedes there is a wide variance between the top-rated malls and weaker properties. For instance, foot traffic rose 1.4% at GGP's high-end A malls for the first six months of the year, but was flat at its midtier B malls.
Rather than building new centers, mall owners are spending to redevelop existing properties, often by replacing aging or troubled chains such as Sears Holdings Corp. and Macy's Inc. with discount stores, movie theaters and grocers that are better drivers of foot traffic.
One exception is the American Dream Meadowlands project in N. J., which is under construction and expected to be completed in 2019. But with more than half its space leased to entertainment, including a DreamWorks water park and a Nickelodeon theme park, it goes out of its way not to call itself a mall.
GGP is also upending the standard formula. Only about 30% of the SoNo mall will contain retail chains, reflecting a shift in shopper spending away from clothing toward beauty, health and fitness and entertainment.
The developer had to make other adjustments as well. It abandoned a proposed hotel and it changed the definition of "anchor" to give it the option at some time in the future to replace Nordstrom and Bloomingdale's with tenants such as a supermarket or sporting goods chain.
Some residents are less than thrilled about the prospect of a new mall in their neighborhood.
"Everywhere you look it seems that retail is struggling," said Margaret Kozlark, a 52-year-old who lives in Norwalk. "I'm the target shopper and I don't go to malls anymore."
City officials also had some reservations, but they were won over by the promise of tax revenue and the creation of 2,500 jobs, which would make the SoNo mall Norwalk's largest employer, beating out an operator of local hospitals.
"There was concern about building a mall," said Bruce Kimmel, a Norwalk city council member, "but we went through the demographic data and decided it was worth it."
Write to Suzanne Kapner at Suzanne.Kapner@wsj.com
(END) Dow Jones Newswires
October 24, 2017 07:14 ET (11:14 GMT)