Here is How Mall Redevelopments Might Tank Property Values

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Here's How Mall Redevelopments Could Tank Property Values

Even before the COVID-19 pandemic, many shopping malls across the country were in trouble. The obvious solution for property investors and developers was to convert these decaying centers into other property types.

The reason for these conversions is straightforward: there is an oversupply of retail buildings in the United States, and many defunct shopping centers have already been converted for industrial use.

Since 2017, according to CBRE, a total of 13.8 million square meters of retail space has been converted into 15.5 million square meters of industrial space across the country. which expects the trend to continue.

"As online retail continues to evolve and expand, many retailers and developers will find ways to convert underperforming stores into last mile sales locations to support e-commerce operations," said John Morris, director of industry, logistics and Retail at CBRE in the prepared comments.

The disadvantage

However, this strategy has one significant disadvantage.

In a report titled "The Long-Awaited Settlement for Retail," Barclays Capital says 15% to 17% of US malls may no longer be "viable" as malls, according to CNBC. According to Barclays, around 10,000 retail stores could close in 2020. Once 20% of a mall is empty, there is a risk that it will default.

Here's the problem: Converting those malls into fulfillment centers, apartment complexes, schools or medical offices could bring property values ​​down from 60% to 90%, Ryan Preclaw, research analyst at Barclays, told CNBC's Worldwide Exchange.

If the mall's land is converted into a mixed-use settlement, it may offer better restoration values. But that's only happened to about 15% of the former malls, Preclaw told CNBC.

Jake Reiter, President of Verde Capital, pointed this out in an earlier interview with GlobeSt the difficulty of redeveloping shopping centers.

"If you have enough patience and capital, you can redesign a mall," Reiter told GlobeSt. "But that's an art form in itself. This is serious money for really smart people who know their way around retail, apartment buildings, doctor's offices, and re-registration."

For those with the expertise and patience, the mall remodeling could ultimately make sense. It just won't happen overnight. “I know people who have successfully renovated shopping centers, and that took them ten years in good times,” says Reiter. “It was just a tremendously time-consuming and expensive experience. This required an enormous amount of specialist knowledge. "

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