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Developers Reimagine

Phoenix Metro Malls

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With The Passage Of Time And Caused By Shifting Demographics And Buying Habits, Many Shopping Malls Throughout The Phoenix Metro Are Being Targeted For New, Multi-Use Renovations

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By Wayne Schutsky
Modern Times Magazine

Dec. 4, 2015 — The malls are dead. Long live malls.

In Arizona’s contemporary economic landscape, the traditional malls of the past are quickly becoming archaic relics best saved for the memories of former 1990s teens with the nostalgic smells of Limited Too and Cinnabon stuck in their nostrils. But the slow death of these former retail powerhouses is not discouraging real estate developers who are trying to reinvent the mall model for a new generation in order to capture lightning (and lots of money) in a bottle once again.

Traditional malls had their day. When Metrocenter Mall opened in 1973, it was one of the largest facilities of its kind west of the Mississippi. It also contained five anchor department stores (Rhodes Brothers, Goldwater’s, The Broadway, Sears and Diamond’s), which was unheard of at the time, said Carlyle Development Group COO Warren Fink at a recent Valley Partnership breakfast entitled “The great makeover: Redeveloping Valley shopping malls and power centers from retail to mixed-use.”

With its central Phoenix location and abundance of stores, Metrocenter remained a powerhouse for decades until increased crime rates, changing demographics and urban sprawl resulted in dwindling occupancy and patronage in the late 1990s and early 2000s.

Multiple developers have sunk money into the mall to bring it back to life since then, but only now does it appear to actually have a chance of coming off of life support thanks to an innovative new plan by Carlyle.

Metrocenter is not alone. The mall landscape in the Valley is changing due to the loss of several traditional department stores and other tenants for big box space, including Fiesta Mall in Mesa, Paradise Valley Mall in Northeast Phoenix and Chandler Fashion Center in Chandler.

“When we opened Chandler Fashion Center back in 2001, there were six department stores vying for four locations,” said Macerich Vice President of Development Scott Nelson at the Valley Partnership talk. “Now you only have two moderate, traditional department stores, Dillards and Macys, and then you have some fashion department stores—Nordstroms, Saks [Fifth Avenue], Bloomingdale’s, Neiman Marcus—but that’s not for every market and not for every property. So, those aren’t the ones growing or setting the pace for new development or filling the space.”

At the same time, the malls (and other retail centers) are losing shoppers to online retailers like Amazon. In the third quarter of 2015, e-commerce still made up just 7.4 percent of all retail sales, but those online sales are growing at a much faster pace than sales in traditional brick and mortar stores, according to Nelson.

Total retail sales increased by 1.2 percent between the second and third quarter, while isolated e-commerce sales increased by 4.2 percent, according to the U.S. Census Bureau.

“Consumer behavior has changed dramatically in the past decade and they want a more experiential environment to shop, live, work and play,” said Fink. “Additionally consumers are using internet purchasing more frequently and consciously spend less time shopping at traditional malls.”

People are still going to malls; they are just doing it in smaller and smaller numbers and that makes the properties less appealing for potential property owners and investors.

That’s why several players in real estate development are determined to give malls a facelift (or a whole new face) in the hopes that they can give consumers something the Internet cannot.

Metrocenter is a perfect example. Carlyle Development Group purchased the property out of receivership for just $12.2 million in 2012. At one point, the property was valued at around $200 million and the previous owner also performed a $37-million interior renovation in 2007.

In other words, Carlyle had a steal on its hands. But that doesn’t mean the company is content to rest on its laurels and let Metrocenter play out its days as a subpar property.

Carlyle made it a point to stabilize rents to avoid losing more tenants. It also needed to go out and lure a big fish to return some luster to the property. After two years of tough negotiations, that fish came on board in the form of everyone’s favorite megastore, Walmart, according to Fink.

The former Broadway store at Metrocenter is under demolition that will be done by the end of the year, and Walmart will start construction on its new space in 2016.

“That was important for us, because [we] needed a catalyst,” said Fink.

It now wants Metrocenter to embody what might currently be the hottest phrase in real estate development: live-work-play.

“Live-work-play” refers to properties that offer office, retail/entertainment, and living space all in one location. Developers believe that by combining all of the amenities in one facility, they can entice buyers to shut down their computers and venture out to these properties.

Fink believes Carlyle’s petition for rezoning and Planned Unit Development (PUD) for a mixed use project should be approved by the city soon. This will allow the company to turn Metrocenter into more than just another 1.3-million-square-foot retail center with a Walmart. It gives Carlyle the freedom to compliment Metrocenter’s retail offering by adding office, healthcare, senior living, hotels and even schools.

The Metrocenter project has also benefitted from cooperation by the City of Phoenix. The City Council voted to amend plans for expansion of the Light Rail to add a transit station in close proximity to the Metrocenter mixed-use development.

This is the crux of the new mall model. The live-work-play buzzword could easily be replaced by the word “options”. By giving consumers a plethora of reasons to be at a property, developers hope they can convince them to log off of their computers and visit brick and mortar super centers.

“The Metrocenter location with highway access and visibility coupled by the approved and to be developed Light Rail Transit station will create a new urban environment that will be in demand for corporate offices, healthcare, multi family and senior housing, entertainment venues [like] restaurants, galleries [and] theatres over the next few years and thereafter,” said Fink.

Future development at Metrocenter could also include the construction of 10 to 15 story buildings to house hotels, multi-family or senior housing.

“With the planned Light Rail transit station coming to Metrocenter the demand for on site residential multi family and senior housing should be strong,” said Fink. “The overall market demand in Phoenix for senior housing and multi family apartments further confirms our expectations.”

It is not just old shopping malls following this model, either. New projects are also adopting the live-work-play mentality. RED Development’s CityScape in Downtown Phoenix includes shops, high-end and fast food restaurants, a gym, the Stand Up Live comedy club and a combo hotel/apartment building all in one property. RED is also working on a similar project in Dallas called the The Union Dallas.

Based on the sentiments expressed by the panel at the Valley Partnership meeting, properties like the Metrocenter redevelopment and CityScape are going to become the new normal. Developers are realizing that they have to offer more than just a Sears, Hot Topic and a food court to attract buyers these days.

That’s not to say every traditional mall in the Valley is dead. Scottsdale Fashion Square still has plenty of life in it, evidenced by its recent expansion and plans to add a new Harkins movie theatre to replace the current one. Properties like Scottsdale Quarter (located a few miles north of Fashion Square in Scottsdale) embody the “live, work, play” model and are poaching some of the older mall’s audience.

For the most part, traditional malls are a thing of the past. In 20 years, the teens of the late 2010s probably won’t even remember the huge climate controlled warehouses that their parents shopped in.

Instead, they’ll remember worshipping at the shrine of consumerism in these new “live, work, play” centers that are all the rage right now. But by then, “live, work, play” will probably be old hat and the whole cycle might just start over again.

The malls are dead. Long live malls.
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