The shoppers may be gone, but two big adaptive reuse projects in Texas show that many shuttered Sears stores still occupy valuable real estate that can once again anchor a development.

The two Texas projects, one in Dallas and the other in Houston, recently received CoStar Impact Awards for being successfully converted from department stores into new uses that their developers say can fill a community need. One former Sears store, in South Dallas, will soon host two outpatient medical facilities totaling 150,000 square feet. Another, in downtown Houston, has reopened as a 266,000-square-foot “innovation hub” with office space, prototyping labs and other amenities for nascent businesses.

LoopNet spoke with the developers behind both projects to ascertain why they were attracted to the former Sears stores, how they converted the buildings to new uses and whether their projects offer a blueprint for revitalizing malls across the country.

Dallas is home to dozens of hospitals, but just one is located south of Interstate 30, which cuts through downtown.

That north-south divide highlights the disparity in access to medical care that has only been exacerbated during the pandemic. That’s why Peter Brodsky, a former private-equity investor turned real estate developer, wanted healthcare services to anchor the former shopping mall he’s redeveloping in South Dallas. Formerly the Red Bird (then Southwest Center) Mall, the newly christened Shops at RedBird property will become a mixed-use development including apartments, office space, entertainment, plus the two outpatient facilities coming to the former Sears store.

“Southern Dallas is a very misunderstood part of our city,” Brodsky said. “It is filled with people who have plenty of purchasing power, but who the commercial markets have not provided with the quality amenities that they want. We found out pretty quickly that you can't really name a quality amenity that that there isn't too little of. This is an under-doctored area.”

Brodsky said his team reached out to every medical institution in Dallas. Three of them will be tenants at the RedBird property. Parkland Health signed on to open a primary care clinic in part of a former Dillard’s store at the mall, and University of Texas Southwestern signed a 15-year lease to open a specialty care clinic on the first floor of the former Sears. Children’s Health of Dallas is subleasing the 2nd floor of the Sears store from UT Southwestern for a pediatric outpatient clinic.

Converting parts of a shuttered mall to medical use has been done before. Brodsky’s partner in the RedBird project, Terrence Maiden of Russell Glen Co., helped bring Vanderbilt Health to One Hundred Oaks Mall in Nashville, Tennessee, more than a decade ago. Some of the same fundamentals that make retail work in a space also apply to medical uses, the developers said.

First, malls are generally located in areas with purchasing power, Brodsky said. They’re also often conveniently located with good access for both public and private transportation. And there is plenty of surface parking for visitors.

“All of those things are great for a medical facility,” Brodsky said.

Controlling costs was the main incentive to rehabilitate the Sears store instead of tearing it down. Lower project costs also enabled the RedBird team to offer lower rent to UT Southwestern, whose strong-credit, long-term lease agreement led to $28.6 million in construction loans from Veritex Community Bank.

“[RedBird] came to us with a financing request that was honestly a little bit hard to do,” said Leo Smith, a vice president at Veritex. “They were requesting 100% financing. Obviously with UT Southwestern being a credit tenant for a 15-year lease, from that perspective, that made it a lot easier for us.”

Not demolishing the former Sears store also allowed RedBird to keep the medical facility attached to the rest of the project.

“We wanted to have the opportunity for patients and staff members to come into the mall to kill time before an appointment or grab lunch,” Brodsky said.

Reusing the building also saved time on construction. The team built around the store’s foundation, floor and steel columns. The Sears project broke ground in October 2020 and will welcome its first patients in July.

There were still obstacles to converting the former department store into a medical facility, however. Mall anchor stores typically have massive floor plates that don’t offer enough natural light for patients in a medical facility.

The team, including architecture firm Perkins+Will, did several things during construction to make the former Sears store feel more open. They added windows to each infusion (IV) therapy room and built a zen garden near the north side of the building to give patients something to look at besides a mall parking lot. Other construction improvements included adding to the store’s foundation to better support heavy machinery such as imaging equipment, and building out separate hallways and entrances to exam rooms for patients and medical staff, to create an “onstage, offstage” effect.

It's “sort of like Disneyland, where you never see the back of house,” Brodsky said.

The Houston site didn’t just lose a Sears, the property also lost out on its bid for Amazon’s sought-after second headquarters, known as HQ2.

Rice Management Co., which stewards Rice University’s $8.1 billion endowment and has controlled the site since 2018, pivoted from its HQ2 bid to creating a local “innovation district” aimed at spurring new economic activity and keeping Houston competitive among its peers.

The space, known as the Ion District, will be anchored by a former 266,000-square-foot Sears store now known as The Ion that hosts, among other things, new offices for Chevron Technology Ventures and Microsoft.

Rice Management spent $120 million converting the former Sears store.

“The original Sears building has an irreplaceable structure that includes high ceilings, robust columns, and huge floor plates – nearly double that of a typical downtown building – which creates open space for people to collaborate,” Ryan LeVasseur, managing director of real estate at Rice Management, told LoopNet. “It would be cost-prohibitive to create a new structure that would replicate the desirable dimensions and character of the existing Sears building.”

The Ion includes Class A office space, shared workspaces, classrooms, a 250-seat forum that hosts monthly pitch competitions, a machine prototyping lab, as well as indoor and outdoor communal areas. The goal is to attract Houston’s talent pipeline across various industries such as energy and aerospace, and to bolster collaboration. The Ion’s current occupancy is at 60%, including long-term tenants and month-to-month desk and office rentals that start at $250 per month.

Rice maintained some original elements of the building, restoring its terrazzo floors and letting its tones influence the building’s color palette. Rice removed the store’s exterior walls in favor of a new curtain wall, but restored and repurposed street-level “showcase windows,” which are now occupied by public art instead of mannequins.

Like the Dallas project, introducing more natural light into the store was a challenge. To do this, James Carpenter Design Associates created a 100-foot-wide “light well” slicing through the building at an angle, following the path of the sun from a skylight above. They also developed an outdoor communal space called the Ion Plaza.

“Where commercial properties typically turn inward, The Ion Plaza is intended to set the standard in the Ion District and for other spaces, to create a place for people to come together,” LeVasseur said.

Like many other projects during the pandemic, The Ion was affected by material shortages and supply chain delays. Holdups in receiving furniture, specialized metal surfaces and building permits postponed the building’s opening by about two months. Construction started in July 2019, and The Ion opened to tenants last year.

Rice seeks a development partner for the rest of the estimated $1 billion Ion District project. Climate-tech incubator Greentown Labs Houston and nonprofit musical theatre company Theatre Under the Stars have already signed on.

“Our team is working hard to ensure the Ion District is a job-generating neighborhood fueled by clean and sustainable technologies and the entrepreneurial drive to find a better way,” LeVasseur said.

The Sears redevelopment projects in Dallas and Houston are similar to other work being done across the country.

In Norfolk, Virginia, a developer has converted a historic Ames & Brownley department store into a 50,000-square-foot office building for creative companies, tech startups and freelancers. The second phase of the project, set to begin next year, will extend to the former Sears store next door and add another 53,000 square feet to the development.

Department stores like Sears lend themselves well to uses requiring big floor plates like offices and medical centers, but those large floor plates remain a challenge for other uses, such as residential.

“You could never turn a department store into an apartment building because you need to have natural light in all the apartments,” Brodsky said. “You don't need to have natural light in every single exam room.”

Besides controlling cost and inheriting adaptable department stores, both Texas developers tell LoopNet that there is another benefit to rehabbing a shuttered Sears store: the nostalgia that it brings visitors.

“We are privileged to meet Houstonians who are reminded of childhood memories with their parents or grandparents coming to buy a new appliance or their new shoes for the start of the school year,” LeVasseur said. “It is a joy to witness how the preservation of a simple box of a building can rekindle warm emotions and thoughts of loved ones.”