Successfully converting a dying mall to another use requires a simple leap of faith…along with good instincts, perfect timing and the right location. In other words, it is no easy feat. Chris Semarjian, owner of Industrial Commercial Properties LLC (ICP) and an experienced redeveloper of underutilized commercial space, sat down at I.CON West 2019 to talk with Norm Khoury, SIOR, CCIM, Colliers International brokerage senior vice president, about what makes retail conversions so complicated.
As an example, Semarjian spoke about his company’s experience repositioning the Randall Park Mall, which would eventually become an Amazon distribution center, outside of Cleveland, Ohio. Built in 1976, it was the largest mall in the United States (1.8 million square feet on 100 acres) and one of the main employers in the Village of North Randall. Despite being an icon of the community, the mall was already in decline by 1996 and further deteriorated during the 2000s. Several speculators proposed saving the property but none of the plans were implemented.
ICP recognized the mall’s potential to house other uses such as a call center or light industrial. However, several large anchor tenants owned their stores, complicating the acquisition process. In early 2014, ICP gradually began buying each of the large tenant spaces, including Sears, Macy’s and Dillard’s, with the goal of repurposing them. The community was supportive of ICP’s efforts, believing the conversion of the mall would bring jobs back to the community.
Later that year, a third-party broker approached ICP, indicating that Amazon was interested in purchasing the site; they thought the mall, located next to a highway, would be an ideal location for a distribution center. ICP negotiated a deal that they would demolish the mall while retaining ownership of several out parcels adjacent to the mall. The community was especially welcoming to Amazon and the property was rezoned within four months. Construction of the $180 million, 900,000-square-foot facility was completed within a year.
Semarjian commented that when ICP acquired the property the company “never dreamed that Amazon would be interested.” But the e-commerce boom, as well as the mall’s central location, helped rapidly change the site’s future. The facility has had an enormously positive impact on the community, according to Semarjian, bringing in much-needed jobs and spurring additional surrounding development.
Semarjian admitted luck was part of this deal. ICP took a risk acquiring the project with the belief that land values would eventually rise in the area – and the company was right. He offered several takeaways from his experiences:
- Shopping centers can be ideal locations for distribution and warehouse facilities because they are usually located near highways, have infrastructure in place, offer ample parking and are close to population centers.
- The acquisition of multi-tenanted retail properties can be complicated due to leasing and ownership arrangements. Finding a property with one owner would be ideal, but it is rare.
- Location is of primary importance now more than ever. A project may be struggling, but if it is in an advantageous (or soon-to-be advantageous) location it can be repositioned into a profitable enterprise.
- Work with the community. Many municipalities are eager to turn around vacant and underperforming retail properties and will expedite processes to help implement a project that will spur economic benefits.
- Let the end-user or tenant receive the incentives from the community. ICP did not receive economic incentives during the project. Instead Amazon, as the purveyor of jobs, negotiated with the community.
- Rely on third parties. While acquiring and demolishing Randall Park Mall, ICP brought in experts who could help them in areas they did not specialize in such as property management and civil engineering.
- Be proactive when seeking properties. ICP likes to be “where other people aren’t” and sees “RFP as a dirty word.” A good strategy is to be ahead of the curve and not to wait for a property to be offered. If you see a property struggling, learn more about it and talk to people directly. It could be your next home run.
Image courtesy of Chris Semarjian.
NAIOP’s Vice President for Knowledge and Research Jennifer LeFurgy, Ph.D., directs knowledge and research activities and serves as the Editor in Chief of Development magazine.