As stores close down in shopping malls throughout the U.S., Americans buy more online and commercial real estate gets squeezed by rising interest rates, malls are plunging in value and becoming ghost towns, The Wall Street Journal reports.
Crystal Mall in Waterford, Conn., recently sold for $9.5 million, 1/15th of its appraised value of $153 million in 2012. New Jersey’s 1.1 million-square-foot Woodbridge Center was just valued at $86 million, 76% less than its prepandemic appraisal in 2014.
“We’ve seen dozens and dozens of malls liquidated at losses or had their values cut,” says Manus Clancy, senior managing director at Trepp.
When an anchor department store leaves, it hastens the mall exodus, says Vince Tibone, head of U.S. retail and industrial research for real estate research firm Green Street.
Between 2018 and 2020, 875 department store anchors—including Macy’s, Bon-Ton, JPPenney and Sears—gave up and left shopping malls, according to Green Street.
“It really accelerated the death spiral of the industry,” Tibone says. “You start losing department stores. That causes sales and traffic at the center to decline. Then more tenants leave. It starts this awful cycle.”
As malls empty out, customers find it depressing, too, prompting fewer and fewer to show up.
“All the stores used to be open, and everything used to be nice and beautiful,” noted Melissa Rodriquez, standing outside Crystal Mall’s food court recently. “It’s not like before.”
Perhaps as a sign of weakening consumer spending to come, Bed Bath & Beyond and Christmas Tree Shops recently went bankrupt, creating a further vacuum at U.S. shopping malls.
While older, low-end malls are seeing their value typically fall up to 75% from their 2016 peaks, newer, higher-end malls are maintaining their foot traffic—but even these can be worth 50% less.
Adding to malls’ woes is $14 billion of loans held by these properties that will be due at higher interest rates in the next 12 months, according to Moody’s Analytics.
This jibes with the $1.5 trillion in total commercial real estate at risk of default, $736 billion of which are for offices.
According to the National Association of Realtors, the office vacancy rate in the U.S. reached a new record high at 13.1% by the end of the first half of 2023.
As a result, across the country, office-to-housing conversions are being pursued as a potential lifeline for struggling downtown business districts that emptied out during the coronavirus pandemic and may never fully recover. The conversion push is marked by an emphasis on affordability. Multiple cities are offering serious tax breaks for developers to incentivize office-to-housing conversions—provided that a certain percentage of apartments are offered at affordable below-market prices.
Cities and towns are also considering converting shopping malls into mixed-use sites including hotels, arenas, hockey rinks or bowling alleys.
“That’s what this property could be,” says Waterford First Selectman Rob Brule, who grew up in the town enjoying Crystal Mall in his youth. “To look at it now, it’s disheartening.”
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