Mall Makeovers

Retail owners and managers give shoppers non-traditional reasons to visit their struggling centers.

Once a thriving regional mall in the suburbs of St. Louis, by early 2009 Crestwood Court was overwhelmed by dark corners and wings. Dillard's, one of three big-box anchors, had moved out while several smaller stores had closed. Then after 39 years in residence — and one poor holiday season too many — Macy's shuttered its storefront.

The plight of Crestwood Court, which is owned by Chicago-based Centrum Properties, is all too familiar to U.S. mall owners wrestling with their own crises spawned by recession and depressed consumer spending. Driven by necessity, however, a few mall operators have come up with innovative attractions that are luring shoppers back to their properties.

While their approaches vary, these landlords share a common desire to reclaim a place at the center of their communities, and perhaps set an example that other owners can follow to revitalize their own properties.

Art of revitalization

The 1.1 million sq. ft. Crestwood Court originated in 1984 with the enclosure of a shopping center constructed in 1957. Over the following decades, with updates few and far between, Crestwood fell into decline.

Many of Crestwood's loyal customers — those with childhood memories of shopping for school clothes each season and eating ice cream at Woolworth's — were lured away by fresher, newer mall offerings.

“We had a wing in the center that was definitely underperforming,” says John Bemis, national director of leasing for Jones Lang LaSalle Retail, Crestwood's property manager. “It certainly didn't appear that it was going to be coming back strong in the immediate future.”

Chicago-based Jones Lang LaSalle leases and/or manages more than 55 million sq. ft. of retail space throughout the United States.

In the summer of 2008, in an effort to revive Crescent Court, the leasing team came up with the idea of transforming the center wing into a community art destination, a place where artisans and locals could gather for painting, sculpting, live theater and dance, among other disciplines.

Today, ArtSpace occupies 160,000 sq. ft. of the 445,000 sq. ft. of rentable small shop space at Crestwood. “Every one of the spaces was finished so the various groups could come in at a reasonable cost and get open,” Bemis explains. “Then it became an old-fashioned word-of-mouth campaign. The artisan community began seeking out Crestwood Court.”

Such practices that are designed to drive traffic to underperforming malls require a critical mass to pull off. “You can't just do it in three spaces,” says Bemis. “You need to have 20-plus spaces to make it real and to make it pop.”

ArtSpace, for instance, is made up of 52 shops averaging about 3,000 sq. ft. The area boasts nearly 200 artists, given that many spaces are shared. A lot of time and effort is dedicated to matching the artist with existing finish-outs that complement their needs, such as wood floors for dance companies, and sinks — in former hair salons — for painters and sculptors, according to Jones Lang LaSalle.

ArtSpace made its debut in the summer of 2009. Then in January and February of this year, the mall saw a 10% increase in sales, just slightly higher than the national average, Bemis says, but reversing a downward slide.

“When you're attracting creative uses it's important to hopefully serve a portion of the community that is either an infrequent shopper or person who rarely comes to the mall,” Bemis concludes. The concept is now a national best practice for Jones LaSalle. The Macon Mall in Macon, Ga., is in the beginning stages of developing its own art space.

A history lesson

Although 53 years is a ripe old age for most American malls, Warehouse Row in Chattanooga, Tenn. can trace its roots back to the mid-1800s. That is when the Western & Atlantic Railroad laid tracks through the area and Market Street became a bustling downtown thoroughfare and home to Warehouse Row.

The area was already an industrial center when seven of Warehouse Row's three-story, street-front warehouses went up between 1904 and 1911. General Electric Supply Corp. built the eighth building in 1929. But by the mid-1900s, with alternative forms of transportation to move goods, Chattanooga's prosperity as a railroad hub fell by the wayside.

The stand of brick warehouses underwent a renaissance in 1989, serving as an outlet mall, which was failing by 2006 when Jamestown Properties purchased the nine-building Warehouse Row for $14 million. “The buildings suffered a steady decline over a number of years,” recalls Michael Phillips, creative director for Jamestown, who spearheaded the revitalization of the project.

Jamestown, based in Atlanta and Cologne, Germany, has acquired more than $8 billion worth of properties since its founding in 1983. The company focuses on core and private equity real estate funds in 24/7 markets as well as Sunbelt territories with strong demographic growth.

Chattanooga was known as a tourist stop for destinations such as Rock City, Ruby Falls and the Tennessee Aquarium. “Also Chattanooga is not a large market,” says Phillips. “In terms of mall tenants, most of them are represented at Hamilton Place.” Marketed as Tennessee's largest shopping destination, Hamilton Place is owned by Chattanooga-based CBL & Associates Properties.

“What we decided to do was not focus on the tourists but really focus on local sensibility in terms of people internalizing a community asset,” Phillips says.

For Jamestown, that meant focusing on local and regional retailers, not nationals.

Jamestown completed the $27 million renovation project in the fall of last year. And although it makes up roughly 40%, or 150,000 sq. ft., of the retail space, the project is attracting upscale stores like Amanda Pinson Jewelry, Embellish shoes and Revival Uncommon Goods, a home furnishings seller.

Most of the buildings have four or five floors, with the first two floors occupied by stores and restaurants, and upper-level office suites.

“We got the best hair salon, Level 10,” Phillips brags. The project also snagged Public House, an updated, Southern-style meat-and-three restaurant favored by locals.

On the upper floors, 210,000 sq. ft. of office space has been leased to law, engineering and architecture firms. “We're actively in negotiations with four leases to become tenants for the next wave of leasing.”

Even as Warehouse Row works to lease up the remaining 60% of space with the appropriate tenants, Jamestown continues to scout for other failed shopping centers in 24/7 markets that it can acquire and successfully reposition.

Back to the nitty-gritty

Other investors are training their sites on power centers near major malls in secondary markets. That's the case with New York-based Stonemar Properties, which owns 11 million sq. ft. of shopping centers across 21 states.

Despite the terrible toll the recession has taken on malls in general, Jonathan Gould, CEO of Stonemar, is bullish on the product type. Historically, he says, malls have been the best-located properties in their communities and offer superior infrastructure, like parking.

“The malls aren't going away. These malls are tremendous investments,” Gould maintains. “They have tremendous sponsorship in terms of huge companies behind them.”

Just when the national market turned bad quickly in 2008, Stonemar and its partner, The Hampshire Real Estate Cos., acquired Milford Plaza, a 181,000 sq. ft. shopping center in Milford, Conn. The purchase price was $30 million and the partners are investing another $2 million in the renovation, which is slated for completion over the next 12 months.

Milford Plaza would not be considered a glamorous retail property by any measure. What makes it particularly interesting, however, is how Stonemar has been “re-jiggering” its tenancy to make the space work more efficiently.

For instance, one big-box retailer, Bob's Stores, is currently occupying 50,000 sq. ft. of space. Gould hopes to downsize the retailer into a 35,000 sq. ft. space, thus leaving room for another small-box retailer or two.

In certain instances tenants have been physically moved from one place to another within the center. “In some cases they were on the upswing and they wanted to be in a more dominant part of the center,” Gould explains. “And in some cases they didn't need as much space or needed to be in a larger space on the side strip.”

In addition to playing a little tenant Monopoly, Stonemar removed a small liquor store that took up 1,500 sq. ft. and is bringing in a wine store that will occupy 20,000 sq. ft. As part of the zoning, the new owner had to also eliminate a karate school because of the proximity to the liquor store.

While the project is still under construction, a new Dollar Tree store signed on for 9,000 sq. ft. and is already bringing traffic to the center. The original vacancy rate ranged from 10% to 15%. Today, vacancy been shaved down to just 6%.

The secret of Gould's success? “It was really getting down to micromanaging and getting into every single space. It was really understanding who needed to be where and familiarizing yourself with the real nitty-gritty of the day-to-day,” he says. “That's what you have to do today.”

Sibley Fleming is managing editor.

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