A 60-year-old enclosed mall, a popular institution in a North Jersey municipality, is about to be dramatically reconfigured in a reflection of the times: Much of its retail space will be demolished and replaced with an open-air town center and 1,000 luxury apartments.
At the redevelopment's groundbreaking this month, Eatontown Mayor Anthony Talerico Jr. acknowledged that the $500 million project had stirred criticism and "intense emotions" from residents who didn't want to see "a radical" change in the Monmouth Mall. For decades, different generations came to the retail center to shop, dine, hang out and socialize. Nicole Kushner Meyer, president of Kushner Cos., the firm overhauling the mall, recalled taking her daughters there to have their ears pierced.
But it's a different era now, and Eatontown has to move with the times to remain economically vibrant, Talerico said, "We can't deny that the landscape is changing and we should change with it."
Adding residences to malls isn't new, but projects are picking up nationally. The concept is designed to naturally increase foot traffic, real estate professionals say, while creating a new mix of store lineups to vie for space in an already tight U.S. retail market. Brokers and landlords are looking to land deals this week in Las Vegas at the annual ICSC trade group conference.
Monmouth Mall, located about 55 miles from New York City, is a prime example of what is happening to large U.S. retail centers. To adapt to changing consumer shopping habits, including e-commerce, malls are being reimagined as mixed-use properties to drive foot traffic. And a popular addition to a mall in redevelopment is residences, as is happening at the Monmouth Mall. Housing is the top use added to a mall, part of roughly 55% of redevelopments, followed by office space and hotels, according to a 2022 study by real estate firm JLL.
The industry adage used to be "retail follows rooftops," but now it's changing to become "rooftops follow retail," said Kristin Mueller, JLL president of Retail Property Management. She has even written about the topic of housing becoming a big component of mixed-use mall redevelopment.
There are a number of factors driving this trend. For one, there's a nationwide shortage of housing, including senior residences, and an over-abundance of obsolete retail space. Next, the demise of department store chains, such as Sears and Lord & Taylor, has created the need for a new kind of real estate use to replace traditional mall anchors. As a result, now multifamily housing is sometimes taking over empty or demolished anchor space.
And in the wake of the pandemic and hybrid work, Americans are embracing open-air centers with housing as an accompaniment. Reimagined malls with walkability, combining multifamily with adjacent stores and dining, offers convenience, what Michael Sommer, Kushner's chief development officer, called "urban lite." On-site residents are also "this new captive audience" available to frequent stores and eateries, said Rick Latella, Cushman & Wakefield executive managing director and Americas practice group leader for retail.
"The statistic from JLL emphasizes an evolving trend we've observed in the retail and real estate sector and underscores the industry's shift towards creating more inclusive, multiuse spaces that cater to a broader set of needs and preferences," Josh Schrier, senior vice president of acquisitions for Philadelphia-based PREIT Realty, said in an email. "Consumer demand has trended towards walkable, mixed-use communities that de-emphasize driving; national retailers and exciting dining, grocery and convenience offerings make mall sites a great place for these consumers."
Development Obstacles
But making housing part of a mall redevelopment can pose challenges. In some communities, residents and local officials don't want more residents, for fear it will burden their schools and municipal services. Zoning changes may be required. And some malls have different owners for different parcels. For example, Macy's owns many of its anchor stores.
Under reciprocal easement agreements, or REAs, a redeveloper typically has to get all those stakeholders to agree on a plan that adds a new use, such as housing to a mall, said Sarah Cafaro, a senior director at Avison Young. And developers have to do their homework to determine how much housing should be added to a mall, if any, and how much retail space should be left standing for the project "to pencil," or make financial sense.
This year, Simon Property Group, the nation's largest mall owner, said it would invest $1.5 billion to diversify and densify its properties, adding 2,000 multifamily units and hotel rooms to its retail centers. On Monday, the real estate investment trust announced plans to build 850 apartments at Fashion Valley, the largest regional mall in San Diego.
And mall owner PREIT, which emerged from Chapter 11 earlier this year as a privately held company, has more than 1,100 residential units completed or underway at its properties, including 350 apartments open at Exton Square Mall in Pennsylvania, roughly 825 underway at Springfield Town Center in Virginia and Moorestown Mall in New Jersey, according to Schrier. PREIT, which has approval to build up to 2,200 multifamily units at Springfield, is also "actively working on future projects at many of our assets in the Washington, D.C., and Philadelphia metro areas, he said.
“Landlords have known they have needed to do this for more than a decade,” Garrick Brown, vice president of real estate intelligence and business development at Gallelli Real Estate, said of incorporating housing into retail properties. “It wasn’t until 2020 that you saw the stars begin to align and then they exploded. ... There has been a broader shift toward creating a more mixed-use environment. This hasn’t been for all landlords and developers, but it is one positive thing that came out of the pandemic.”
Some of the other pending mall redevelopment projects that include housing are:
- Stonestown Galleria in San Francisco is slated for a revamp by Brookfield Properties that would add 3,500 homes, the Bay City's largest housing proposal since 2011.
- The Galleria, a 44-year-old mall in White Plains, New York, heads toward demolition by Pacific Retail Capital Partners in a proposed $2.5 billion redevelopment that will have seven residential towers of varied heights with up to 3,200 apartments.
- Lakeside Mall near Detroit, is set to be demolished by Lionheart Capital to make way for a $1 billion mixed-use development that's slated to include about 2,800 apartments, including senior housing.
- Westfield Garden State Plaza in Paramus, New Jersey, will be getting up to nearly 1,400 residential units as part of a major redevelopment and diversification by global mall landlord Unibail-Rodamco-Westfield.
Farther south in New Jersey, the redevelopment of Monmouth Mall, being renamed Monmouth Square, is underway. The property will be "de-malled," with 600,000 of its 1.5 million square feet of retail space slashed to create an open-air town center. Department store anchors Macy's and Boscov's will remain, while a Whole Foods Market, a network of pedestrian pathways, the luxury apartment units, and amenities like a clubhouse and medical office space are added.
Convenience, Connectivity
"These regional malls are just not really suited to compete in today's world and certainly not in the long term," Kushner's Sommer told CoStar News. "Now why does a town center make sense? Why does it make sense to build residential? People like the convenience of a downtown type of environment and the easy connectivity to all of these lifestyle options, such as being able to walk to a grocery store. ... Living in an urban environment is not necessarily for everyone. We refer to this as 'urban lite.'"
In addition to the U.S. housing shortage, high interest rates are making buying a house with an affordable mortgage more difficult, according to Sommer. So renting a modern apartment at Monmouth Square is another option for them, he said.
Developers and mall landlords have to do their research to decide if they should add housing to a particular retail property and if so, how much. CBRE does "location intelligence" that incorporates a variety of data points, including government statistics and area demographics, to determine what the industry calls the highest-and-best-use for a site, Mark Hunter, the brokerage's managing director of retail asset services, told CoStar News.
The research process for mall owner Pacific Retail Capital Partners for a redevelopment entails doing a "void analysis," Najla Kayyem, executive vice president of marketing at the Los Angeles-based company, told CoStar News.
"We look at the market and see what's missing," she said. "Figuring out where the demand is, figuring out the void analysis and then feeding the community what it wants."
Mall sites lend themselves to multifamily development for a variety of reasons, according to developers, brokers and landlords. They are typically built on flat sites in highly visible and accessible locations in well-populated areas. And older malls often have huge underutilized surface parking lots, parcels that often stand empty. They were built when a high ratio of parking-to-retail space was required, according to Hunter.
"So if you had a 1 million-square-foot mall, you had to have 5,000 spaces," he said. "So you had these big parking lot fields. And then over the last 10 years or so, driving habits have changed. The pandemic sort of caused some of that and then you had the ride-share services."
It's rare to see those lots filled, according to Hunter. Those parcels can be used for housing instead.
"It's almost like they've [redevelopers] got a clean palette to start with," Latella said.
Higher Apartment Rents
And apartments integrated into malls can command higher rents than similar units in their markets, according to both Latella and Mueller.
"There's absolutely a rent premium," Mueller said. "The residential leases up faster when it has a retail amenity. The tenants stay longer. ... It's equally good for the retail space because retailers get to their percentage rent faster. Retailers renew at higher rents. It's good for everybody."
When residences are incorporated into a mall, the roster of retail tenants has to be adjusted accordingly, Mueller and others said, moving away from typical staples like apparel stores that don't generate a lot of repeat visits.
“Adding some housing component also means filling some of the retail space with more daily uses that cater to personal needs, such as restaurants, entertainment and other stuff that is more e-commerce resistant," Brown said. "That has all helped create more densified centers and has filled a lot of the vacancies created by the bankruptcies that happened through the pandemic.”
Fitness centers, grocery stores, healthcare facilities and personal-service salons also make sense as part of the necessary new retail mix, Mueller said.
Mall owners, with their expertise in retail real estate, sometimes partner with experienced multifamily developers when they want to add housing to a property as part of a redevelopment.
For the White Plains Galleria, Pacific Retail is teaming up with a local developer, the Cappelli Organization, as well as office owner SL Green Realty, Kayyem said. At the Garden State Plaza mall, Paris-based Unibail-Rodamco-Westfield has enlisted Mill Creek Residential as co-developer for that mixed-use redevelopment.
In PREIT's case, sometimes it is shedding land at retail centers to other companies to construct housing.
"We are focused on creating value at our properties — in many cases, we are selling non-revenue generating land to experienced multifamily developers who have a more extensive background in underwriting these developments as well as to minimize our risk and capital outlays," Schrier. "The result is an eco-friendly, walkable, community with high-quality multifamily products and more customers on our doorsteps."
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