Today's post comes from (and contains the analysis and opinions of) guest blogger Scott Hounsel, J.D., AICP. Scott can be contacted at scott@scotthounsel.com or by phone at 214.536.3421.
According to the Urban Land Institute, “The shopping mall is the quintessential American contribution to the world’s consumer culture… [b]ut the conditions that led to the creation of shopping malls and sustained them for decades are changing rapidly.” The International Council of Shopping Centers says that currently there are 1,500 malls in the U.S. Due to economic and demographic changes, many older shopping malls are dead (see www.deadmalls.com) and the survival of distressed malls has become an increasingly public question, as the original developer has departed with its anticipated profit and the deteriorating site is unattractive to re-developers without public financial assistance. A source in a recent Wall Street Journal article said that there are 84 dead malls in the U.S., with more casualties expected during the current recession. General Growth Properties, owner of 200 malls, filed for bankruptcy in April 2009, although it claimed that its mall business would be unaffected.
Arguing that certain financial institutions were “too big to fail,” many commentators feel that the federal government acted appropriately in providing astronomical amounts of assistance to those institutions. Generally speaking, no one in the real estate community considers any development project too big to fail, but the credit crunch has increased the pressure on all levels of government to step in and assist distressed real estate, not because the owner/developer deserves help, but because certain real estate projects (including some malls) provide positive externalities (social/cultural/economic) to the greater urban area that many feel must be preserved. Shopping malls, unlike big box centers, can serve a social functional beyond mere economic consumption; this is an attractive feature in a healthy mall, but can become a negative feature contributing to a death spiral for a distressed property.
Public assistance for distressed real estate usually is a local decision, and a very contentious one politically at a time when many localities are cash-strapped. Thus, for example, while General Motors is given the unique opportunity to reinvent itself (albeit through bankruptcy), the City of Detroit, heavily impacted by many of the same economic issues that have plagued GM, is 30% vacant; some areas of the city have almost returned to a natural state. A full description of the shrinking of Detroit is provided in a recent on-line article at The Map Scroll. This process is unlikely to be reversed, whatever happens with the U.S. auto industry.
Closer to my home, I have been intrigued by the reinvention discussion surrounding the Southwest Center Mall in southern Dallas. Formerly known as Red Bird Mall, this large shopping mall, built in 1975, has suffered from the construction of newer commercial developments that successfully targeted population growth from suburban cities further south and west. Economic Darwinists would have an easy case that this mall should go “the way of Detroit,” as the mall cannot survive on its own despite its three major anchor tenants (two anchors have left for greener suburban pastures) and the fact that the population in the immediate area has remained constant (unlike Detroit). Yet the City of Dallas, in part due to political concerns generated over the distressed mall, brought in a research team from the Urban Land Institute to see if absolute failure could be prevented.
After a week of study, the ULI report (as presented to City staff in June 2009) gives a dire prognosis: the situation is so bad that only the City can take the first steps to save it. The ULI report gives no recommendation for the best possible re-use for the “mostly-dead” mall; any community planning process to determine a particular re-use strategy would be viable only after the City of Dallas steps in to buy the empty anchor sites (mixed ownership of the land has been a contributing factor to the decline of Southwest Center Mall). The ULI recommendation can be summarized in three steps: (1) City assembles the vacant tracts of land, (2) City engages local community as part of writing the redevelopment plan, and (3) City recruits a developer to build according to the plan. The idea that the City should literally buy into the mall (an estimated $4 million for the two empty anchors) comes at a time when the City is facing its biggest budget deficit in ten years. Although hardly a conventional plan for the redevelopment of distressed property, the suggestion that the City of Dallas has to be the first to put up new money is what bailout politics are all about in 2009.
Unfortunately, cities increasingly are on the frontline to help “preserve” distressed real estate when its decline threatens the health of the larger urban community. As for Dallas and Southwest Center Mall, some soul searching and perhaps some investigation into other deteriorating malls around the country are needed before the City opens its checkbook.
