Here's some more news to brighten your day: An increasing number of malls are going out of business, putting financial pressure on the retailers and mall developers that make a living from them, and creating another headache for the banks that finance them. Besides suffering from a massive hangover from excess borrowing, the U.S. soon will feel the effects of building projects in the wrong locations.
In the 12 months ended March 31, reports the Wall Street Journal, U.S. malls collectively logged a 6.5% decline in tenant same-store sales. That's a direct outgrowth of consumers retrenching from their decades-long binge of mass overconsumption. Retail sales are down not only because consumer credit is tightening but because millions of Americans have awoken to the fact that they carry way too much debt and have saved too little for retirement. It will take years for retail spending to return to 2008 levels.
But the awfulness doesn't stop there. The decline in retail sales is hurting big retailers, prompting Stardard & Poor's to downgrade credit ratings on department store companies like Macy's and Sears. General Growth Properties, a Real Estate Investment Trust owning more than 200 malls, filed for bankrtupcy protection last month. Based on the rule of thumb that malls must generate $250 per square foot or more to survive, the WSJ has concluded that 84 of the 1,032 malls in the Green Street database are in danger of failing.
What the Journal article doesn't explore is the location of those malls. I would hypothesize that the vast majority are located on the development fringe of metropolitan areas -- the farthest outposts of "suburban sprawl" (an imprecise term that I hate using) developed in the era of cheap gasoline, long commutes and massive speculative building of residential real estate. The real estate bubble has burst, however, and the glut of unsold houses is worst in outlying areas. Many developers will find that not only are consumers spending less, but the markets their malls were built to serve will never materialize. Wealth destruction on such a massive scale is a tragedy.
The story gets worse. Malls are extremely difficult to repurpose. Owners will find it difficult to adapt them to an alternate use. And timing is running out. The five-year financing for many developers will expire in a year or two, and developers will have to refinance. It's only a matter of time before we see a slew of developer bankruptcies -- and another massive wave of bad loans reported by banks. It's not clear to me if the Obama administration's bank "stress tests" took the impending tidal wave of commercial real estate defaults, but I wouldn't be surprised if the issue was swept under the rug.
Burt P. Flickinger III with Strategic Resource Group, a research firm, put it this way to the Journal: "The shopper-center bankrtuptcies and the REIT bankruptcies are the ticking time bomb that people aren't talking about."
Sadly, Boomergeddonites, there is more bad economic news, more banking hysteria, and more pressure for government bail-outs to come. The age wave apocalypse may be running ahead of schedule.
(By the way, type in "empty mall" on YouTube, and you'll see dozens of video clips like the one above.)
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Jim Bacon:
ReplyDeleteGood topic. Your Vocabulary is little alarmist but may turn out to be on the money – or off the money, as it were.
Speaking of money, smart money stopped building Traditional “Regional Shopping Malls” in prosperous New Urban Regions a decade ago.
The well-located Malls have been transforming themselves into mixed use destinations for over 20 years. Have you been to White Flint or Tysons I lately?
General Growth got caught holding too many that had not made the switch – like Tysons II. They appear to have had no idea what was going on in the business until they bought out Rouse Co and brought in new blood. By that time it was too late.
There is a whole cottage industry focused on the issue of mall recycling. “New Urban News” likes to feature the success stories on the topic and has given the belated efforts of General Growth some play in recent issues.
Because of low R-Number locations, ‘traditional Malls’ are not that hard to rebuild. One just has to admit they have to be Fundamentally Transformed – and written down. That means the “B” word for over leveraged UnRealEstate.
The much larger and more common problem is failing Power Centers, Big Box Centers, Super Strips and other low capital, scattered retail venues.
There is a whole literature on the topic. See Julia Christensen’s “Big Box Reuse.” Joel Garreau did a fun item in WaPo on 16 Nov 2008 – “Big Box & Beyond.” Joel named names and had some perspectives drawn of what the Transformation of specific ‘centers’ in the National Capital Subregion might look like. (Google it, WaPo will charge you for the article if you can even find it via their klutzy search feature.)
The key is – as always – build over the parking, create critical mass, create Affordable (by definition it is Accessible) Housing, create Balance.
If Claude Lewenz (“How to Build a Village”) was not so doctrinaire, he could sell two or three Car Free Clusters at some of the larger sites.
What is REALLY scary is that in the remote high R-Number sites, “developers” are STILL putting up places for mega grocery stores, Targets, Costcos and Wal*Marts.
One other note. Recall that the Wall Street Journal is no longer The Wall Street Journal. It is Fox News with a “hypercapitalist” spin. It is hard to figure why Rupert would run something like this but, there IS a reason. Perhaps some friends want to buy up some deflated REIT stock?
EMR
"A lifestyle center (or lifestyle centre[1]) is a shopping center or mixed-used commercial development that combines the traditional retail functions of a shopping mall but with leisure amenities oriented towards upscale consumers"
ReplyDelete.....
"The growth of lifestyle centers had occurred at the same time of an acceleration of the shutting down of traditional shopping malls, which typically require large sites over 70 acres (283,000 m²) at a time when land prices are escalating. Lifestyle centers usually require less land and generate higher revenue margins, often generating close to 500 dollars per square foot, compared to an average of 330 dollars per square foot for a traditional mall, ..."
http://en.wikipedia.org/wiki/Lifestyle_center_(retail)
Locally, we are seeing a reconfiguration.. and part of it involves building stand-alone retail/restaurant on the parking areas of the mall.
But we've had 4 new shopping venues built since our Mall was built and none of them are malls.. and all of them are shopping centers with scattered mixed uses... restaurants... offices... child-care banks... all stand-alone and apart from the main shopping strip.
I think malls were already in rigor when the recession hit anyhow...
the thing about recessions is that they put the Walmarts and Costcos and the like on steroids.
People still need 'stuff' ... whether it be their prescriptions or green tea or DVD players... but they willing to go for less fancy for less money...
also..have folks noticed that CVS and Rite Aid are building more and more stand-alone stores away from other stores?
Strategy is.. you go to get your prescriptions ... and if they can keep you there for 15 minutes.. you'll wander through their aisles and pick up the slightly more expensive stuff that would take a second stop at another place.
All true Larry but the two overarching facts are:
ReplyDeleteThe US of A is vastly 'Overstored'
The recent store location has neglected the fact that workers / Households can only go so far form jobs and jobs are Centroid / Core weighted.
Having saturated the market within R = 20, most retail chains have move out looking for new locations. At the same time Wal*Mart has moved in.
Overstored in highly levereage developments means a lot of suffering. Just what Jim suggests.
EMR
I dunno EMR.. I strongly suspect when the dust clears - the WalMarts are going to still be around.
ReplyDeleteTo me.. they are like king-sized, modern-day versions of the old mom&pop country stores....except their stock is not dusty and out of date... and their prices are tolerable enough ...and no ... not all of their stuff comes from China... no more or less than other stores that sell the same stuff.
if you need prescriptions, tire, eye glasses, dog food, tomatoes, catfish, fresh bread.. tennis shoes... AA batteries ...and a potty break... you're in business with a one-stop shopping trip....
We'll know that we REALLY are in trouble when WalMarts start going belly-up... right?
See Response at Bacons Rebellion
ReplyDeleteEMR