De-Malling

from Shopping Center Business, May 2006
"Considerations that a developer should take into account when evaluating whether de-malling is viable:
1. Reasons Renovation Needed:
Some of the major reasons a shopping mall may need renovating are decreased traffic, and demographic changes, which are not themselves entirely independent. A decline in traffic can occur because many non-fashion, anchored, enclosed malls do not offer the customer appeal or the desired location for today's more current, popular specialty stores.
2. Who are the Anchors, Majors and other Land Owners?
Anchors, majors and/or other land owners often use a renovation project as an opportunity to extract concessions from a developer.
3. Who is the Lender?
Although a lender obviously wants its borrower to succeed, a lender usually is more focused on ensuring that its collateral does not suffer a decline in value, which could lead to a foreclosure and potentially could result in a fire sale. Therefore, a lender may have different ideas about what is best for the success of the center.
4. Relocating Existing Tenants:
Although most leases will allow a landlord to relocate a tenant in the event of a major renovation, the leases usually also require that the tenant's business operations not be disrupted in a significant manner.
For larger tenants, the landlord's relocation right may be limited to a particular area in the center or simply be non-existent.
5. What is the Status of the CC&Rs?
Many older centers have covenants, conditions and restrictions
(CC&Rs) which govern the operation and use of the shopping mall.
CC&Rs are often entered into by the various owners of the land under the center, although anchors/major tenants also have rights regarding what can be done with respect to the center's common area.
6. Cooperation with/from Local Government:
Local governments usually are receptive to renovating an outdated shopping mall, but, as with lenders, anchors, majors and other land owners, a local government may have different priorities, such as upgrading public transit access, upgrading fire ratings for existing structures or increasing sales tax.
7. You Can't Please Everybody:
While it is only natural for a developer to want to maintain good relations with its tenants, there are times when it is necessary to make a decision that does not coincide with what a particular tenant wants.
8. Expect the Unexpected:
No matter how much foresight a developer puts into planning, there will always be unexpected delays and costs.
9. Climate:
De-malling is a popular alternative in California due to its relatively temperate climate. De-malling is not as feasible wherever extreme cold or heat is characteristic of the regional climate.
In determining whether de-malling a shopping mall is feasible and economically viable, there are factors other than the foregoing that need to be addressed. However, the issues outlined above will assist in evaluating and executing the de-malling process."



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