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

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...

Comments

nope-1004 pods Wed, 10/25/2017 - 11:46 Permalink

The only reason this abomination is being built is because the Fed has set an illusionary interest rate.  Borrowing for these big boys has nothing to do with customer demand and everything to do with loan servicing costs.  The business plan has taken a 180 degree flip from "what do your customers need" to "how much will it cost me to borrow so I can build".Put the value of money back to a point where savers aren't punished and horribly stupid projects like this will end. 

In reply to by pods

Son of Loki Stuck on Zero Wed, 10/25/2017 - 12:42 Permalink

I sent Dan Bell some info about a mall I happened to visit while driving thru texas the other day; the San Jacinto Mall in Baytown. What a sad sight. 80% empty. The Food Court was not bad and the Mexican lady who runs the Japanese Fast Food place that sells Chinese food, tells me they stay in buiness from local workers who come in for lunch. Otherwise, it's a dead Mall Walking.

In reply to by Stuck on Zero

Endgame Napoleon nope-1004 Wed, 10/25/2017 - 12:10 Permalink

This comment was clarifying.

There are too many malls anyway. It does not help existing malls survive when they have too much competition, not that mall stores pay their employees much, God knows. The horror of mom-and-pop retailers getting a chance!

The vast majority of mall employees can’t finance rent on their mall store jobs, not on earned-only income, i.e. not without womb-based welfare/taxfare or a spousal income.

They cannot live on the pay alone unless they are the general manager who is paid 9 or 10 times more than the employees in the case of those big department stores. One thing about them: Unlike so many family-friendly managers in offices, back offices and call centers, those mall store general managers usually are not on an excused babyvacation every other month.

Maybe, the handful of management jobs that pay a decent wage worry economists. But many a mocked mom’s basement dweller works at an upscale mall store. That has been the case for years, for decades.

It sounds like consumers are now prioritizing health, fitness and other more important issues over clothing, none of which is made in the USA, anyway.

In reply to by nope-1004

MaxMax Cognitive Dissonance Wed, 10/25/2017 - 11:59 Permalink

>>A perfect example of miss-allocated capital.That is part of it.  I doubt they think the mall will ever make money.  The money is in building the mall.  Follow the money and I bet the upper execs own the construction company or are getting paid by the constuction company.Building malls is often about the construction.  Make money building it and then convert it into a limited partnership, and then selling the equity to naive investors.  Afterwards, the limited partner collects fees for managing it.  If the mall goes under, the limited partner isn't hurt.

In reply to by Cognitive Dissonance

Dorado Took Red Pill Wed, 10/25/2017 - 13:41 Permalink

I just left CT this spring for Florida after living there for 1.5 years.  People are FLEEING the state that can and the tax base is shrinking dramatically.  Yes the project is planned in the most affluent part of the state however with the demise of hedge funds at the hands of ETF's that area is probably shrinking as well.CT governor was considering new ideas to boost tax revenues when I left including doubling the bottle deposit, putting tolls on the highways/interstates, etc all things that will further cause further constriction of the tax base.  Who do they expect to shop at the mall?  I don't think folks can use food stamps at Hot Topic or the food court.CT is going the way of Detroit.  What an incredible destruction of money this project will be.

In reply to by Took Red Pill

AGuy Took Red Pill Wed, 10/25/2017 - 16:19 Permalink

"Stupid! At least its not in Hartford!"

its worse. Business in Fairfield Cnty CT are leaving faster than Hartford. The only thing Fairfield cnty has going for it is along the Metro North train line as CT residence commute into NYC via rail. That said Just about every street corner in Norwalk and Fairfield Cnty has a home for sale, and there are few buyers.

My guess is that the Project gets canned before construction starts. The nearby malls (Stamford, Trumbull) are struggling. There are usually a few unoccupied stores in each of these malls.

In reply to by Took Red Pill

toocrazy2yoo Wed, 10/25/2017 - 11:18 Permalink

Meh, whatever you build, the Blaxx will find it and ruin it for you. Me, a guy with a family, children and money to spend won't go to a venue where the niggers are out, about and full of shout. I make a point of staying away from feral influence. Just because I CAN carry concealed, doesn't mean I need the time and trouble of defending myself. That mall will do just fine without my money, thanks very much.

toocrazy2yoo lester1 Wed, 10/25/2017 - 11:43 Permalink

They are what they are, but me and my kind are good at migrating away and creating new civilizations elsewhere. One day, we'll tire of moving and defend it right and proper. Until then, as Andrew Young, Mayor of Atlanta for years said "No matter where Whites move, we will find you and move to you too". Hence, seven counties of suburbs around Atlanta.All those burbs were about Whites moving from the violent, feral Black consequence.

In reply to by lester1

HANGEMHIGHER Wed, 10/25/2017 - 11:24 Permalink

It might be a new fema camp. The Nazis made some of the concentration camps look like holiday camps from the outside. See if it's got railway tracks leading to it, thats a dead giveaway.

Kobe Beef D.T.Barnum Wed, 10/25/2017 - 11:49 Permalink

Those dastardly Nazis even made the insides look like holiday camps too, with such amenities as swimming pools, concert halls, libraries, theaters, publishing houses, sporting fields, and yes, even bowling alleys.Amazing that they somehow concealed pedal-powered brain bashing machinestm, electrified floorstm, soap-rendering facilitiestm, and homicidal gas chamberstm, among the pristine grounds that spouted bloodtm, nestled within all that war-time luxury! #dagoyimknow

In reply to by D.T.Barnum

Kobe Beef tuetenueggel Wed, 10/25/2017 - 12:18 Permalink

wish you had, Shlomo.The Judeo-Soviet renovations were particularly grand, adding fake chimneys and Jew-hair mattresses for that true rustic appeal. Even providing mass graves housing 6 gorrillion bodies that remain invisible to ground-penetrating radar!! And that's not all!Revisions continue on these remarkable properties, even to the present day, with the official curator of Auschwitz adding that, well some people died here, but it wasn't the 4 million we originally claimed. Some thought that this could dent the market for these crematorium-hot properties, but no! The Hollywood production companies are always ready to revisit these stunning locales for a bigger, better, Oscar-tm Winning tale!Get in while prices are low, and you too could own a piece of the most remarkable hoax ever told! It's real in your mind, and that makes every stay at Nazi Hotel Paradise unique!

In reply to by tuetenueggel