Mall Foreclosure: When Shopping Malls Are Too Broke To Pay The Bills
The first time the Dixie Square Mall was wrecked, it was for fun. In the 1980 comedy "The Blues Brothers," Dan Aykroyd and John Belushi roughshod through the recently closed Harvey, Illinois shopping center, driving through Toys "R" Us and J.C. Penney in their iconic cop car. "This place has got everything," Belushi deadpans as he crashes through storefronts.
Earlier this month, few locals were laughing as the Chicago-area mall was demolished for real. After four decades of vacancy, demolition proved the only solution to the vandalism, burglary, scrap metal theft, squatters, graffiti, asbestos and fires. The $4 million demolition was funded with a federal grant.
Shoppers' long love affair with suburban malls ended long ago. And since the start of the recession and through this rocky recovery, shopping centers, like their customers, have been fighting foreclosure. Since 2008, six of the largest publicly held real estate companies have relinquished ownership of 22 malls to lenders, according to Green Street Advisors, a real estate research firm.
The practice is even more widespread among private mall owners: In February alone, the Fashion Mall of Plantation, Florida, the Centre at Culpeper of Culpeper, Virginia, Keagy Village of Roanoke, Virginia, Twin Peaks Mall of Longmont, Colorodo, Blue Mountain Mall of Walla Walla, Washington, the Valley View Center of Dallas, Texas and the Gateway Mall of Jacksonville, Florida all underwent foreclosure proceedings.
Cities like Jacksonville are betting that foreclosure will help ailing malls find new owners. Like abandoned homes, empty malls can become liabilities for cities if they sit empty and unmaintained, attracting crime more serious than raucous movie shoots.
Like a house, a mall that enters foreclosure it is auctioned off at a low price, helping pay off part of the debt owed to the bank or lender. It is then free to be renovated, demolished, sold for the land or let decay by its new, debt-free owners.
But it's not always easy to find new owners for malls, even at cheap foreclosure prices. As retail staples like Sears, the Gap and Abercrombie & Fitch continue to shutter U.S. locations and siphon off mall income, foreclosures have only become more common.
The East Hills Mall of Bakersfield, California, which entered foreclosure in December, went up for sale twice before it found a buyer. Earlier that summer, the still-open mall also came close to losing electricity after owners got behind on utility bills. In January, the grocery chain Save Mart, the mall's only remaining anchor tenant, bid on the property for a meager $3.3 million.
Other malls have failed to find buyers at all. In some cases, malls have become repossessed by banks or even municipalities. Westminster Mall in Westminster, Colorado, for one, is now owned by the city's Economic Development Authority. The city bought the blighted property from the developer for $22 million in 2012 after a long series of failed incentives and redevelopment efforts. Westminster currently has plans to demolish the mall and rebuild it as a "downtown."
Still, foreclosure isn't necessarily a death sentence for malls. Some, like the Palm Beach Mall in West Palm Beach, Florida, hope to emerge from the ashes. The property, which entered foreclosure in 2009, is set to be rebuilt as the "Palm Beach Fashion Outlets" by 2013, with luxury tenants like Bloomingdale's Outlet and Last Call by Neiman Marcus.
But for most dying malls, conjuring magical stores out of a thin economy will be no easier post-foreclosure. Without retail, malls are little more than big empty boxes, waiting to be trashed by vandals in suits and Ray-Bans.