Too Old to Be a Mall Any More?

Article excerpt

Experts from coast to coast are predicting poor retail property performance, lower yields, and possible store sures. In the face of these dire warnings, retailers continue to expand and create newer, still bigger formats in their drive for capital market approval.

Yet one manager's crisis is another's opportunity.

If falling performance or encroaching competition is compelling you to consider a retail repositioning, a good place to begin is a nine-step approach advocated by Michael Buckley, national director of real estate consulting for Ernst & Young Kenneth Leventhal Real Estate Group. Buckley believes that this process offers a more rigorous way to assess alternatives for renovation, repositioning, or adaptive reuse.

"Nine out of 10 owners do not have the discipline for this approach, but for those who do, the solution to maximum performance for the property is imbedded in the approach," says Buckley. "If a property has gone dark or has significant vacancy, the problem is usually larger than a cosmetic renovation can remedy."

Audit the Property

The first three steps of Buckley's process involve making an assessment of the property.

* Begin by making a realistic assessment of the site's capacity. Evaluate access, site capacity, and parcel configuration. Consider vehicular flow and parking options. See what limitations are imposed on the site by zoning, land use, and utility infrastructure.

* Look at the asset differently, and listen to what your customers really want. Survey your trade area, but ask questions beyond the usual demographics of age and income level. Psychographics that establish interests and emotional responses are of equal importance. Assess how the market area has evolved since the mali was built. Knowing that your target area is involved in home improvement, nightlife activities, or self-help can help identify potential uses you may not have considered.

* Establish a baseline of current property operations staffing. Use benchmarks with competitors and national indices to determine possible improvements in performance. Assess the physical condition of the base building.

Engage in "What Ifs"

Phase two of Buckley's analysis calls for the development of "creative reuse scenarios" and for the assessment of the physical and financial feasibility of each possibility.

* Look for unique ways that the center, or a part of the center, can serve a particular market niche. Look for cultural, location, or recreational attributes that would appeal to a specific target market you have identified. Develop multiple scenarios to explore.

* Assess the technical impact of each scenario. What changes in codes and zoning would be required for the new use? Do you have adequate water, fire protection, etc.? Buckley notes that at this point you are assessing how an alternative can be accomplished, not making a judgment of whether the idea is good or bad.

* Check the financial feasibility of each alternative by creating realistic pro formas that include a 10 to 20 percent contingency fund. Look for possible financing sources, including government support. For example, converting the second level of a mall into housing might provide access to housing tax credits. Frequently there is tremendous public and governmental support for reusing existing properties, so regulatory problems may also be less than you anticipate.

Choosing the Winning Option

By carefully weighing the first six steps in this evaluation process, a strategic property plan should emerge. Keep in mind here that more than one scenario may be used. For example, you may keep a retail strip in place while converting a vacant department anchor into office or entertainment space. Buckley notes that it is vital to develop a "core image identity" in the marketplace for the transformed property. "Even if the site will support several uses, one or two elements should stand at the core of the property's market identity," he says

* Take a hard look at your company's capacities to achieve the chosen plan. …