Developers are snapping up shopping centers and converting them into mini villages with popular shops, eateries and office space
By: Lisa Selin Davis, The Wall Street Journal
Posted: December 11, 2014 11:04 am ET
Holiday shoppers headed to Southdale Mall for a big-ticket gift can surprise a loved one with this: a $4,500-a-month penthouse apartment with quartz countertops, a rooftop terrace and views of the city … or the parking lot.
One Southdale, a 232-unit luxury development with three buildings (two are completed), opened earlier this year on the southeast corner of the Edina, Minn., mall’s parking lot. Indianapolis-based Simon Property Group worked with local developer StuartCo to build the residences just steps away from Banana Republic, J. Crew and Macy’s and other retailers. Three months after opening, One Southdale is 50% leased.
“There was not any new supply of luxury rental product in Edina,” said Lisa Moe, chief executive officer of StuartCo. “We were able to fill a void.”
With the rebounding real-estate market, conversions of shopping malls into mixed-use developments are on the rise nationwide. White Flint Mall in Rockville, Md., and Landmark Mall in Alexandria, Va., are both slated to be razed and redeveloped to include residential products.
Near the Scottsdale Quarter shopping center outside of Phoenix, developer Crescent Communities is set to begin presales in the spring of 275 luxury apartments. The development follows similar projects called Crescent Cameron Village in Raleigh, N.C., and Crescent Terminus in Atlanta.
In Merrifield, Va., an aging movie theater set in a sea of parking lot was razed and redeveloped in 2012 as the Mosaic District. It now includes upscale boutiques, restaurants, common areas for community events and office space. It still has a movie theater, but this one features eight screens, many showing art films. Townhomes there have three to four bedrooms, some with terraces, maple cabinetry and exposed brick walls, starting at $757,900.
“You’re in this beautiful townhouse with this urban vibe,” said jewelry designer Sophie Blake, 33, who with her husband bought a three-bedroom unit at Mosaic for $738,000 before the residences were even built. It may be farther away from D.C. than her last home in Arlington, she said, but “it’s in a very central location.”
Developers are trying to meet the demand for more urban, walkable neighborhoods—even in the suburbs. And shopping centers, once the antithesis of such a life, have become the prime targets of reinvention. Many of them are situated at the intersection of major highways and near mass-transit stops.
“We get calls all the time from residential and hotel developers wanting to buy land in our parking lots,” said Patrick Peterman, a vice president at Simon Property Group, the country’s largest mall owner. “That’s no secret that they really value the shopping center land.”
According to the International Council of Shopping Centers, growth in the mall industry overall has slowed considerably post-recession. Yet mall construction spending has been on the rise—from $8 billion in 2010 to $12 billion in 2013. Almost all of that money has gone toward redevelopment or improvements.
“We’re not over-retailed, we’re under-demolished,” said Don Wood, president and CEO of Rockville, Md.-based developer Federal Realty Investment Trust, which is redeveloping the former Mid-Pike Plaza shopping center outside Washington, D.C., into a mixed-use development called Pike & Rose. A decade ago the company added 175 apartments to its own strip-center headquarters in Rockville, Md., and it is now adding 50 more.
“There’s a lot of retail product that doesn’t meet people’s needs anymore,” he said.
Federal Realty undertook its first such project in 2002, when it razed and rebuilt an underused strip center in California’s Silicon Valley. After a $700 million overhaul over the past decade, the development, called Santana Row, now has 835 apartments, many above retail stores. Rents there range from $2,000 to $13,000 a month for a penthouse, some with floor-to-ceiling windows and roof decks.
Adding residential to retail isn’t a magic bullet for ailing shopping centers, but they tend to be sound investments, whether for buyers or for residential developers. Chris Kvale, 43, a sales representative for a fitness-equipment manufacturer, rents a two-bedroom apartment overlooking the courtyard at One Southdale for $1,800 a month.
Mr. Kvale, who is divorced with two young children, has met his neighbors at parties hosted by the developer. “I was concerned it was going to be all empty nesters or young professionals, but it’s been a good mix of everybody,” he said. “They like having kids around.”
“The Twin Cities clearly had a rental shortage that’s now being filled,” said John Wanninger, an agent with Edina-based Lakes Sotheby’s International Realty. Mr. Wanninger handled sales for a condo project across the street at the upscale Galleria Edina, with 82 condos priced between $400,000 and $3 million. The project opened in 2008 and is 90% sold; prices have since risen an average of 10%, he said.
At One Southdale, as in most such developments, residents don’t get special shopping privileges, though there is a pool, a putting green and private parking.
“The benefit to the resident is that in a cold climate like Minneapolis they can walk to dinner or to go shopping in a climate-controlled environment,” said Mr. Wanninger.