With Malls In Full Meltdown Mode, GGP Goes All-In With $525MM Connecticut Mega-Mall

Tyler Durden's picture

So what do you do when your business has entered a period of secular decline due to changing consumer trends which has created an environment of massive oversupply and no pricing power?  Well, if you're the once-bankrupt commercial REIT, General Growth Properties (GGP), then you build a brand new $525 million mega-mall and make the problem even worse.  Per The Wall Street Journal:

On a bright August morning, GGP Inc., one of the country’s largest mall operators, broke ground on a new shopping mall.

 

“We’re not building any more,” said GGP Chief Executive Sandeep Mathrani. “This could be it for a long period of time.”

 

The seemingly risky bet on a new mall comes as retailers close hundreds of stores and malls across the country try to reinvent themselves. While GGP saw an opening to fill what it deemed an underserved area in Norwalk, Conn., about 50 miles north of New York City, it could be one of the last malls of its kind ever built in the U.S.

 

The $525 million SoNo Collection, as the new mall will be called when it opens in 2019, will be anchored by Nordstrom and Bloomingdale’s and house 80 to 100 smaller stores, including as many as 10 restaurants and potentially a health club. One change from malls of the past: There will be far fewer apparel retailers. GGP has pre-leased about 60% of the available space.

All of which has given GGP shorts a brand new reason to celebrate...

Of course, as we pointed out earlier this year, this move from GGP comes as malls all over the country have been forced to replace once-dominant department store anchors with grocery stores, doctors offices, libraries and even a high school (see: America's Desperate Mall Owners Turn To Grocers, Doctors & High Schools To Fill Empty Space).

Natick Mall in Natick, Mass., is leasing 194,000 square feet of space vacated by J.C. Penney Co. to upscale grocer Wegmans Food Markets Inc., which is planning to open a store in 2018.

 

College Mall in Bloomington, Ind., plans to bring in 365 by Whole Foods Market in the fall.

 

Grocery giant Kroger Co., meanwhile, has purchased a former Macy’s Inc. location at Kingsdale Shopping Center in Upper Arlington, Ohio, and plans to build a new store in its place.

 

Beneath some positive stats, shopping malls are facing serious problems that threaten their health, including a shift to non-retail tenants and forecasted rent declines, according to Wells Fargo analysts.

 

Wells Fargo stresses a need to look deeper at high mall occupancy rates. Occupancy for the fourth quarter of 2016 was 93.6%, near the 93.3% for all of 2015, according to data from the National Council of Real Estate Investment Fiduciaries, cited by the International Council of Shopping Centers. However, the type of tenants many malls have is shifting to a lower-quality occupant for the overall health of the retail-focused mall, the analysts said.

 

"[F]or example, there are far more ‘mom-and-pop’ stores, and some malls have repurposed space for non-retail uses such as doctors offices, town libraries and even a high school,” Wells Fargo said in the report published Sunday. “Mom-and-pop” retail in a mall setting may generally be seen as a more-vulnerable long-term tenant and less of a traffic pusher without big-name brand backing.

In a testament to just how 'unique' GGP's new project is, only 6 malls have been built over the past decade as most REIT's, despite cheap financing, have acknowledged that their industry just might be saturated.

U.S. mall development peaked in the 1970s and has steadily declined. Just six large malls were built between 2006 and 2015, compared with 54 during the previous decade, according to Green Street.

 

Mr. Mathrani said the death of shopping malls has been exaggerated. GGP has leased nearly 10 million square feet so far this year, up from 9.5 million for all of 2016. But he concedes there is a wide variance between the top-rated malls and weaker properties. For instance, foot traffic rose 1.4% at GGP’s high-end A malls for the first six months of the year, but was flat at its midtier B malls.

That said, as the Journal points out, GGP seemingly admitted the foolishness of their new construction upfront by upending industry-standard lease agreements to allow them to replace Nordstrom and Bloomingdale's at some point in the future with a grocery store.  And we're almost certain that grocery store will be more than willing to pay the same rent to sell a $2 gallon of milk as Nordstrom would pay to sell their $1,000 purses.

GGP is also upending the standard formula. Only about 30% of the SoNo mall will contain retail chains, reflecting a shift in shopper spending away from clothing toward beauty, health and fitness and entertainment.

 

The developer had to make other adjustments as well. It abandoned a proposed hotel and it changed the definition of “anchor” to give it the option at some time in the future to replace Nordstrom and Bloomingdale’s with tenants such as a supermarket or sporting-goods chain.

But sure, there's absolutely no downside to perpetually low interest rates...

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aliens is here's picture

More crap different look.

innertrader's picture

OLDER malls in my state are being used by the government!!!

 

SETHE RICH???

TRIUMPH with TRUMP!!!

Herdee's picture

Abandoned malls both inside and out make good areas for growing vegetables through hydroponics and greenhouse methods.  Do you know how many greenhouses a farmer could put up in some of those empty parking lots?  Vacant tall buildings that are all run down in areas of most U.S. Cities in decay will also be in demand eventually.  Many new patented vertical farming techniques that use hydroponics and l.e.d. lighting are now coming into the markets and moving out of the experimental stages. Retailers and farmers still don't understand that the real money is in the leafies not in the animals or other retail products.

toocrazy2yoo's picture

Problem is, you have the niggroids' children snuffing out the revenue at the malls. Industrial processes, heavily guarded, might be a use for them, but as a walk-in to buy stuff? Forget it.

Dickweed Wang's picture

Screw vegetables, let's start growing some prime bud in those abandoned buildings. Smoke 'em if you've got 'em!

itstippy's picture

The mall near me is nowhere near as busy as it once was, but the surrounding area is JAMMED with vehicular traffic.  There are dozens of chain resaraunts and a few big box retaillers like Home Depot and Wal-Mart that have built near the mall.  They're busy.

I don't think today's "consumer" is interested in spending several hours walking around the mall carrying shopping bags.  I don't think they're even physically capable of it, judging by their bulk and flabbiness.  They want to drive their car to a retail outlet, buy some stuff, get back in the car and drive to Burger Dudes, eat some stuff, get back in the car and drive to Donuts R Us, buy some doughnuts, get back in the car and drive home.  

Screwtape III's picture

That sums it up nicely.  ;-)

tuetenueggel's picture

If you own just 20(credit) bucks, it´s hard to spend 25. When plastic will be out even those 20 are gone.

simple math. maybe not simple enough for niggers and co.

Ron_Mexico's picture

then drive to the heart center for cardiac catheterization and a stent . . .

bpj's picture

I don't get it, malls died when social networks made it possible for kids to hangout at home

toocrazy2yoo's picture

And for niggers to arrange flash mobs at malls.

taketheredpill's picture

Grocery can withstand the Amazon onslaught for now, since you can't ship (most) food so location bets will probably work.  Unless Whole Foods plops down next door.

 

Online sales will always be cheaper but is there any way for retail to fight back with hands-on advantage, being able to try clothes on first or actually see them?  What if Malls formed "Buyers Clubs" where you pay up front for guaranteed discounts?

 

howlongistoolong's picture

Norwalk approved this because they couldn't figure out any other way to suck tax dollars out of an empty lot. Whether it does anything else for Norwalk is uncertain, but it certainly filled some budget holes as of now. As for me, I'm never going to step foot in it. No reason to.

bh2's picture

The USG owns far more dead, empty space than mall operators. Maintained at taxpayer expense, of course. 

Anteater's picture

And USG wouldn't even open that unused space as emergency shelters

when people were dying in New Orleans and Houston, but they pocketed

the Apple lease payment for an entire base, and looted out Medicare, and

now they're capping your 401k, so only the Rich get capital gains income.

NYC and WADC are a plague upon humanity.

techpriest's picture

So I went and read up on it - they are saying that the 401k contributions will be capped at $2400/year, down from $18000.

In other words, if you are saving that $18,000 currently, you will effectively be saving $15,000 with most of it in a taxable account.

Short term this might scare up some tax cash, but long term the money is not "locked in" in the same way. Usually if money goes in, it goes into the stock market and stays there, which props up the markets and keeps money invested in the USA.

Long term, since the money is not locked in, it could wreck the markets because people who were putting in pre-tax money will now be putting in less, and many might decide that stocks aren't always the best place to put that money, and they will be much freer to pull it out.

If they're eating the seed corn, then you know the time is short.

wisehiney's picture

No money to spend at the mall after CT jacks taxes even more to try to save their bankrupt asses.

Elitist and I like it's picture

Who owns the construction company? Same guys?

tuetenueggel's picture

The very new US princple of sucsess:

Kicking the can down the street until there is not longer any street. Will not be sucessful, but as taxpayer finances these 535 Million by saving taxes for GGP it makes sense. From their point if view.

vealparm's picture

This is not the only "Mall" under construction in the country.There is one under construction in Riverton, Utah. While the Salt Lake Tribune has called it a "Mega-Mall", other articles are carefully calling it a "Mixed Use Center" or village. 

It is being constructed on an 85 acre site with retail, office complex, luxury movie theater(to show Harvey Weinstein movies.....hahaha) and hotel.

It is being built by CenterCal Properties on Mormon Church owned land.

J J Pettigrew's picture

Same where I llve

buiilding malls next to struggling malls

new grocery stores next to new grocery stores

Misallocation of resources in full bloom

money chasing any kind of return.... possibilities

goldoverbtc's picture

This project is going to lose so much money, just because a company is good at one thing, doesn't mean they should continue doing that if the business is obviously dying.

 

www.escapeamazon.com

1stepcloser's picture

Ghost malls add to GDP....ask China 

Able Ape's picture

And their NEXT project is: building a totally automated buggy-whip manufacturing plant...

Deep Snorkeler's picture

America, an Entire Economy Based on Retail Hallucinations

Each retail offering more phony than sane humans can bear.

Ads, coupons, deals and sales, a nation dominated by

corporations each larger than the Roman Empire,

peddling to consumerist lust and degenerate materialism.

 

803Mastiff's picture

Stealth FEMA camp

Rex Andrus's picture

Private profits, public losses. Burn It Down.

FlKeysFisherman's picture

If they modeled it after the movie Idiocracy then they might just be profitable.

roddy6667's picture

I worked in a mall in CT for 3 years. Malls can be deceiving. Even if the parking lot is pretty full and a lot of people are milling around inside, look at what the people are carrying. Are they toting large bags containing clothing or packages of other retail items? Or are they carrying a birthday card from Hallmark and a pretzel? Or empty handed enjoying the free A/C and getting the kids out of their hair for 2 hours? 

Many, many times we saw a busy looking mall packed with people who were not making any serious purchases. 

Duc888's picture

 

 

If you really want a "funny" look at the REAL crime, muggings, armed hold -up's and car theft that goes on in ALL malls in CT.

NOT what the fake news posts in the local papers....or local Tee Vee sez.

If you've got an inside pipeline to the local PD, inquire.

You'd shit your fucking pants.  I happen to know a particular mall located between Stratford CT and Orange CT has 30 car thefts...on a SLOW month.

roddy6667's picture

That's true. Mall security does their best to hush up mall crime so that it doesn't scare customers away. There is usually a police substation at the mall that works closely with security. 

buzzsaw99's picture

1.  we had a mom and pop in our ggp run mall for a dozen years or so and they were rock solid.  ggp forced them out of their long time location so a chain pretzel stand could move in.  no doubt the chain pretzel outfit leased space in more than a few ggp malls but don't tell me that the mom and pops are the flaky ones.

2.  no doubt ggp had to borrow money to build that new mall.  i didn't notice anything about finance or ggp's debt position in the article.  sad reporting there.

3.  i don't know what it is about grocers but they many seem to prefer renting over owning real estate but they are notoriously stingy when it comes to terms so the zh point is, er, on point with that observation.

4.  that 93.6% occupany rate or whatever doesn't include the defunct malls, the malls in bankruptcy, or those owned by the fed.  no doubt the fed will own more malls (or ggp et al junk bonds)  in the future.

Youri Carma's picture

Libraries? Libraries are empty at my end.

rwe2late's picture

 How much CT state pension money is backing this?

What other incentives are being offered by State of CT and City of Norwalk?

Low interest rates from Uncle Sam and what else?

Don't worry folks, even if mall is a total boondoggle

the investors will make money.

Scam? Oh no, it can't be!

my new username's picture

Did Bob Corker get a slice of the sales taxes for the next 50 years?

Don Sunset's picture

Most traditional malls will fail unless they include the following:

1.  Convenient parking

2.  Mass transit HUB to include bus and train/light rail/trolley transit centers.  Must be a HUB!

3.  Loads of trendy restaurants

4.  Hundreds of Condos and/or apartments on site

5.  Movie theater, bowling alley and/or ice rink

6.  Free kiddie play zone

7.  Loads of specialty shops

8.  I meant to say lots of convenient FREE parking

9.  Located in cities with folks that have money

10.  Oudoor social gathering spots with free occasional entertainment

11.  Fitness center

12.  Excludes less frills outlet malls with high density shops and exceptional pricing.

are we there yet's picture

13. Whites with money nearby, and no black youth cruising for targets.

Duc888's picture

 

 

Plenty of non white swarf all over the area.

are we there yet's picture

Thanks for a new word, I looked it up.

Duc888's picture

 

 

....and that is WHY this new mall will fail.  ALREADY Norwalk is a total cluster fuck of traffic between the hours of 7 am to 7 pm.  Just getting INTO Norwalk between those hours is a total clusterfuck.

 

If CT could some how solve it's transportation issues, it might just pull through.............

adr's picture

This mall is going to be what, 15-20 miles from the Danbury Fair? The Danbury mall is already pretty high end. 

That's the problem. I used to have to drive almost an hour to go to a mall. Now there are six malls within an hour drive. 

Duc888's picture

 

 

The thing is looking at the big picture, Danbury is surrounded by little bedroom towns... added up, not a whole lot of foot traffic.  SoNo is a fucking log jam of humans.

QIG's picture

too mny basetee landlords.

 

too much overhead.

 

Come on, Mom and Pop, get busy and make your variety stores local.

frontierland's picture

Turn them into FEMA Camps and Black Sites for processing the Parasitic Invaders...

mfavorit's picture

Wait, what?  They have a grocer that will sell a gallon of milk for $2? I'm there.

Duc888's picture

 

 

1/3rd cow puss from antibiotics.

 

You first.

Falling Down's picture

It's sure to cost local taxpayers millions, just in police/LE coverage.

DaveA's picture

In a supreme irony, the ruins of the Randall Park Mall will soon be flattened to make way for an 855,000-square-foot Amazon warehouse.

Built over an old racetrack near Cleveland, it was the largest mall in the world when it opened in 1976, and it declined for the usual reasons. Malls thrive only as long as affluent white and Asian women feel safe there. It doesn't take much inner-city vibrancy to drive them away.

Kendle C's picture

SoNo? More like, "So No". Wait, let's pretend it's 40 years ago and hang out at the mall.  You pretend you have a job and I'll pretend I don't have to pay my student loan or health insurance bill. Look! Gas is under a dollar and cigarettes don't cause cancer again. 

XBroker1's picture

They can't build townhomes and houses fast enough here in Middle TN. They need more grocery stores and retail. Build here and they will come in droves. We are getting our first Publix next year.