If necessity is the mother of invention in life, then necessity is the mother of REinvention in the life of a mall. Reinventing/redeveloping malls, whether successful or distressed, is absolutely a necessity. Why? Because a mall is never “done” and should always be evolving. Mall owners should, therefore, always be in the mode of reinvention or redevelopment. Even if a mall is successful, the retail marketplace is changing so much and so quickly and so often that the success you may be experiencing today could be short-lived. The Internet and the changing retail landscape will
hurt even the best malls if the malls remain on its same course. You may be king of the mountain today but you need to be thinking about the future. Or, as we say around our shop, it’s time to: RETHINK RETAIL.
For distressed or B Malls, it is even more important to re-think, re-invent or redevelop . . . and quickly. Owners of tired malls need to be very realistic and move more quickly than an owner of a successful mall, as they don’t have the luxury of time. Often I see owners of distressed malls deny reality or ignore the market. Instead of redeveloping, they sit on their hands hoping a deal or 2 will come their way to save them. Heads-up . . . Fairy godmothers do not exist and deals don’t fall into laps. For a retailer to commit to do a new deal in a B Mall, the retailer needs to have confidence in your center, and the only way to instill that confidence is to show that you have a future plan. If you are selling the merits of your B mall in its existing state and think you will get new deals to come your way by doing so, you also may be expecting a visit from your Fairy Godmother tonight.
My best advice for redeveloping/reinventing a mall whether successful or distressed? Think five years out. We want to believe a B mall or distressed asset can be turned around in a shorter period of time, but trust me, it will take 5 years to turn it around. The mall space is complicated with co-tenancies and anchor REA’s, so a longer time-horizon is needed. I often see investors think a tired mall can be turned around in 2 years or so; it can’t. So, devise a five-year plan and work that plan. If your capital stack doesn’t allow you the luxury of 5 years, devise a reinvention plan and strategy that re-invents the mall and sell it by taking your re-invention plan to the market. You may achieve a slightly higher price for your asset with your reinvention plan than if you were to simply sell the mall based on cap rate and existing income.
When devising your plan, consider the marketplace and see what retailers you can bring to the center and also look at the big picture, namely the Internet. Your reinvention plan should include some type of ‘Internet-proofing’, meaning look at adding entertainment, experiential retail and restaurants to your center. Think outside the box and ponder non-traditional uses such as apartments, offices, medical, hotels with conference centers and college campuses. Also be sure to leave no proverbial stone unturned while formulating your plan.
Yes, re-thinking and re-inventing a mall is capital-intensive, but the outlay of capital is needed to fix the asset and put the center on the right course. You don’t want to attempt to conserve capital and go half-way. The result will be you will not have fixed the problem and your mall will continue to languish. You are better off selling the asset then going part of the way, which may just compound your problem.
Finally, don’t wait. Time is not your friend. Simply put: reinvent the mall or sell. You don’t want to wait until it’s too late or otherwise you will have the deathbed regret of wishing you would have re-invented or re-developed your center.