Ari Rastegar is CEO of Rastegar Property Company, a vertically integrated real estate company with a focus on value-oriented real estate.
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Once the epicenter of local communities in decades past, malls across America now sit largely vacant as the rise of e-commerce dramatically changed the shopping landscape. Occupancy and foot traffic in most U.S. malls was already decreasing long before the pandemic — which has only furthered their decline. With the fate of malls left uncertain, forward-thinking investors and developers can seize the opportunity to reimagine these spaces for mixed-use properties.
While in the past the only solution for malls was a revolving door of various retail partners, renovations to mixed-use properties will likely be the future. Given that malls are often located along major thoroughfares and easily accessible by public transportation, they make a great option for conversion to combination residential properties. Many young people are renting for longer periods of time due to debt and skyrocketing single-family home prices. Concerns about climate change also mean young people are ditching cars for public transportation. Young renters will be looking for properties that give them access to public transportation, are affordable and are nearby to shopping, grocery stores, restaurants and more. Properties with in-built access to local amenities will be a top priority, and given the positioning of many malls, they make prime targets for conversion to mixed-use. This approach also works for the many out-of-business big box stores that have been left vacant.
Affordability will be key for investors to attract young people to these properties. With young renters, there is potential for a steady stream of revenue for longer, but this only works if those renters can afford it. Making sure that these mixed-use properties have the amenities and shopping for your target tenant demographics can make or break the success of this type of investment property. If renters can have all of their essentials at their fingertips, they’ll be incentivized to stay long-term.
Some investors and developers may not immediately see the connection or understand the value of keeping a retail element to these mall or storefront conversions. But the inclusion of these businesses is a key component to these property types and is supported by the residential portion of the mixed-use property. Researching which businesses, grocery stores and restaurants will be most useful and engaging for potential tenants will be crucial. Investors and developers alike will want to be painstaking in the efforts to plan out what businesses will be included in the revamped property. For example, a city that’s very health and fitness conscious will absolutely need a healthy grocery store and gym, whereas an area popular with young families will want children’s clothing shops and daycare centers.
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At their core, these properties are all about convenience for potential tenants, so the developers and investors that can discern those renters’ needs will be able to create flourishing properties. When you need a particular item, and there’s a local store that carries it less than a 5-minute walk away, ordering online seems a lot less appealing. Access to these daily conveniences that have been specially selected for each property makes attracting new tenants easier and retention of current residents more likely. When you have a population of consumers that is in line with the businesses located nearby, you end up with a mutually beneficial relationship.
Because these mixed-use developments and conversions can be more complex, it creates an opportunity for collaboration between experts in varying asset classes. Having a variety of expert developers provides a holistic viewpoint for how each planned asset class will fit in together and better sets up the new property for success. Those looking to develop projects solo should still consult with other master developers and really dig in on the research to ensure that they’re building on a solid foundation of renter demand. Investors and developers should also be keeping an eye out for potential conversion opportunities across the Sun Belt where many businesses are flocking post-pandemic and new waves of renters are following.
While it may not be that the grand heights that shopping malls and big-box stores reached during the ’80s and ’90s, there is still a bright future in reimagining the asset class. When developers and investors focus on projects that tie together access to public transportation, affordable rentals and the right retail opportunities, they’re creating a self-contained thriving community. These planned conversions to mixed-use property allow for the flexibility and cohesion needed to build a property that fits seamlessly into the local scene, bringing a sense of authenticity and renewal to potential renters.
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