Mall parking lots are too valuable for landlords to waste on cars

Mall owners have started seeing their parking lots as islands of underused flatland begging to go vertical.


from Shopping Centers Today, September 2006


"Mall REITs are waking up to the tantalizing value of the asphalt-covered acreage within their own portfolios. Many are drawing up plans to rip up their parking lots and replace them with office towers, apartment buildings, hotels, service retail and other moneymakers. There is a lot of pent-up opportunity.


Surface parking and its attendant ring roads and landscaping consume about 75% of the overall site of a typical regional mall. When you start to look at the full utilization of a parcel of 100 acres, what you're saying is that you've got 75 acres there that you can really start to work with.


Mall owners must figure out what to do with all those cars in the lot.
The only realistic solution, at least for large projects, is to spend tens of millions on parking decks. The incremental increase in GLA [gross leasable area] that you're able to produce by eliminating surface parking must offset that cost.


Traditionally, mall parking lots contain 4.5 spaces per 1,000 square feet of mall GLA, so a 1 million-square-foot mall would pack a whopping 4,500 parking spaces. In higher-density urban areas such as the Northeast, the cost of a stand-alone parking deck serving a mixed-use property is about $17,000 per space. A flat lot, by contrast, may cost about $4,000 per space. Not only has the price of concrete shot up in the past couple of years, but the more sophisticated look of today's town center concept translates into greater expense. It can't just be an ugly garage anymore.


And costs can become stratospheric if the site plan calls for underground parking, particularly when construction crews must dynamite bedrock or keep out subterranean water. There are urban sites that have huge demand for residential product, where [the residential] might command an exit sale price of $600 to $1,000 per square foot. But those sites might not be able to withstand a parking cost of $35,000 per space.


Given such constraints, how many of the approximately 1,100 enclosed malls in the U.S. today are candidates, either now or in coming years, for densification? In the near term, architects and developers say, two kinds of properties seem best suited for going vertical:


(1) Top-notch urban malls with high recognition among
consumers, and


(2) Certain lagging malls in markets that, though robust
in themselves, lack a true town center.


Such underperforming properties exist in nearly every healthy market, and developers are focusing harder than ever on creative ways to make them more competitive. These aren't as valuable from a retail standpoint as they once were. But rather than try to unload them on some other developer, these assets can be transformed into something that has value for a different reason. Done well, these can be the downtowns some of these suburban communities never had.


In the long term, mall owners are betting that densification will become more commonplace as growth drives up land values in markets that support only lower-density uses today. That's triggering us to design our brand-new malls with more of a block approach to the parking lots. That way we'll have nice rectangular lots with a grid system of driveways, interior roads and utilities, so that in 15 years we'll have these parcels in a shape that would support converting them right over to above- or below-grade parking structures, possibly as podiums with residential or office on top.


For too long developers have built malls and then years later struggled to figure out how to add new uses and rework the parking. What we are now saying is, after having done that for 50 years, what if we anticipate that? What would that be like?'


Other factors could work in favor of higher-density malls. Despite the daunting cost of parking decks, for example, tearing up asphalt could be less painful than one might think. Twenty or 30 years ago, cheap land enabled developers to err on the side of caution and build parking lots that were unnecessarily large. Most malls are overparked. There are 18 days a year when every space is occupied, but people still always find a place to park.


Some landlords have been able to replace redundant spaces at many of its malls with lifestyle components while avoiding the high cost of building parking decks. Furthermore, the growing phenomenon of public-private partnerships means developers do not always have to pay the entire cost of a parking deck themselves. The national backlash against the abuse of eminent domain, meanwhile, is making it harder for cities to aggregate the multiple parcels of land they need for mixed-use redevelopments.
Rather than give up on so-called smart growth, some municipalities might be more willing to form partnerships with mall REITs that happen to own huge islands of asphalt in the middle of town." For more information see; www.houstonrealtyadvisors.com or www.houstonrealtyadvisors.net