Developers are looking for additional options to recycle outdated retail. Outdoor retail has done well through the pandemic and has become a favorite for retail developers who are either considering new base projects or looking to redesign indoor centers. Developers are also considering fulfillment centers and apartment buildings as alternative uses.
"In warmer and temperate climates we have seen a trend that encourages the development of open-air centers instead of closed projects and the conversion of existing closed shopping centers into large outdoor centers." Scott Grossfeld a partner, Cox, Castle & Nicholson LLPtells GlobeSt.com. "In addition, outdated and / or dark department stores and other larger spaces are being turned into fulfillment centers, multi-family purposes, and other creative and compatible purposes."
While alternative uses may be in greater demand, projects and conversions of outdoor shopping centers are more cost-effective. Fulfillment centers and other alternative uses are more expensive conversions. "Refurbishment projects like this may not be an immediate solution for landlords with distressed closed shopping mall projects," says Grossfeld. "After all, remediation projects of this type can be large, long-term projects that will likely be completed long after the pandemic has ended."
While converting from retail to retail is straightforward because they are ultimately the same use, converting a property to an alternate use means permissions, lease terminations, and consideration of zone requirements. “Such projects typically require extensive claims work, negotiating the termination of multiple leases, negotiating REAs change with major tenants, negotiating with tenants who may have rights to change and design the site plan, arrangements to facilitate city management, and a variety of other issues “, Says Grossfeld. "Additionally, when negotiating new leases, landlords should consider the possibility of major changes to malls like this one in the future and consider provisions that would allow landlords to make major renovation changes without having to obtain substantial tenant approvals."
While conversion projects are more complex and involve higher risk, they can also present greater rewards for the investor. "When the hard work is done, the landlord will have a state-of-the-art project that is likely to perform better in all respects and under all circumstances, and has a better ability to handle the major risks they face today," he says .