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Real Estate Journal
By M. Erin Lavelle, Real Property Capital, Inc. The Death Of A Shopping Mall… Or The Re-Birth Of Community? F inance
B
y the end of 2017, it ap- peared as if the Ameri- can shopping mall, once
than those with the foresight and resources to swap out the big box risk for “experience” tenants such as restaurants and grocery stores. Over the last several years, the market has witnessed enclosed malls trade at a 20% cap rate, or even higher in certain instances. Were we witnessing the death of what was once a vibrant as- set class or a very painful ad- justment that ultimately would make the mall an investment- worthy asset once again? The opportunity those with the foresight to cast a lifesaver of capital out to this distressed asset saw through the weeds
of stigmatism and stagnant growth is simple. Community. Community is Amazon-proof. You cannot package it or de- liver it to a consumer’s front door. We innately seek it out, wanting to surround ourselves with like-minded people who share our interests and values. Shopping malls have tradition- ally been a meeting place where like-minded consumers gather to purchase variety of goods and services and to socialize. The mall deserves credit for making shopping an American pastime. The fundamentals of a shopping mall naturally lend itself to host a community, but
the purpose for the gathering must be redefined. Malls are typically well lo- cated near exits from major highways. In addition to the plethora of parking, they obvi- ously enjoy existing utilities and advantageous entitlement. Municipalities frightened by the danger potential vacancy may have on the safety of their community as well as their tax rolls, are willing to go to great lengths to work with developers to realize their vision to breathe new life into these assets. With the right resources and vision, the possibilities for developers repositioning malls are endless.
A report from AT Kearney, entitled The Future of Shop- ping Centers, outlines the prescription not just to restore financial wellness to this as- set class but also a potential blueprint to reinvent it and prosper accordingly. The report identifies four models, each a successful example of “com- munity” redefined: Destination Center, Value-Centers, Innova- tion Centers and Retailidential Centers. Thriving examples of new developments of each type of center are receiving an abun- dance of capital and are even being snatched up by investors prior to their completion. The Destination Center incor- porates local and national influ- ences into a large regional loca- tion. The Destination Center may be anchored by a flagship store or popular restaurant, but typically a large interior attraction such as a ski slope, water park or roller coaster creates the social setting that brings people together. A Des- tination Center establishes a community focused on sharing a unique experience only avail- able at this location that keeps its members coming back again and again. The Value Center focuses on a community that embraces the same “value” whether that be a specific culture, idea or focus. A booming example is Eataly founded in Italy and has exploded across the globe from Seoul to Sao Paulo with six U.S. locations and growing. The value? Quality ingredients… the best in the world. Qual- ity ingredients is the “Value” embraced by chefs around the globe and they are paying top dollar for it. With the astound- ing returns investors in Eataly have realized, developers are less concerned with the capital required to bring in a tenant like Eataly and more focused on the foot traffic it draws to the Value Center as a whole. The Innovation Center ca- ters to a community seeking a hands-on high-tech experience where data is constantly being gathered from the moment the consumer enters the cen- ter to enhance and evolve the shopping experience. This is a testing ground for new con- cepts, constantly changing and evolving as the data dictates it should. Little confusing? Gen- erally speaking, you can place a price tag or value on every aspect of the Innovation Cen- ter experience. Your next visit continued on page 18C
an integral part of subur- ban life, was facing certain demise. With rent rolls suf- f o c a t e d b y anchor bank- ruptcies and closures, the
M. Erin Lavelle
outlook of the once beloved as- set class seemed glume. Malls anchored by one of the big four: Sears, J.C. Penney, Macy’s or Kohl’s were sure to realize bankruptcy or closure sooner
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