Mall owners, tenants and commercial real estate brokers expect the upcoming holiday season to have a major influence on the future of malls and retailers. Mall owners, tenants and commercial real estate brokers expect the upcoming holiday season to have a major influence on the future of malls and retailers. MIBIZ FILE PHOTO

After activity, rent revenues drop, malls stuck in ‘waiting game’ through holiday season

BY Sunday, October 25, 2020 06:33pm

Business has been brutal this year at the Holland Town Center outdoor mall because of COVID-19 shutdown orders, compounded by the fact that unique retailers don’t have a one-size-fits-all approach for adapting to state orders.

A range of retailers operate in the shopping center at 12330 James St. in Holland, including a gym, ballet studio, yoga studio, chiropractic office and a boutique. State public health rules applied differently for the businesses, complicating the reopening process.

“It was very hard for businesses to plan and adapt so quickly and a lot of the (business owners) could not do that in a timely manner,” said Ramzi Hassan, president of Edwards Realty Co., which owns the Holland mall.

The point of grouping stores together in malls is to increase foot traffic for all of the tenants, but the concept of “leisure shopping” from store to store that drives success at malls has largely been absent during the pandemic. Limited hours, temporarily or permanently closed stores, and public hesitance to shop in-person have all likely contributed to a decrease in foot traffic, Hassan said.

Banking on the holiday 

Mall owners, tenants and commercial real estate companies are waiting to see how much of this year’s lost sales can be made up during the upcoming holiday shopping season. 

“This winter will be very telling on how sales go, but if more restrictions are put in place it will be very tough,” Hassan said.

Also, while several Town Center tenants have benefitted from state and federal relief programs, additional business assistance is uncertain, Hassan said. 

Sales in November and December have averaged about 19 percent of annual retail sales over the last five years, but can be higher for some retailers, according to the National Retail Federation

This is why Colliers International Vice President Mark Ansara doesn’t expect many retail closures until at least the first quarter of 2021 — after the holiday season either makes or breaks retailers. 

“Lots of stores are saying, ‘If I’ve held on this long I’ve got to see what will happen in December,’” Ansara said. 

But Ansara anticipates more roadblocks for malls this year as companies opt out of major in-store Black Friday sales, increased online shopping that was already happening pre-pandemic, and COVID-19 changing consumers’ buying habits.

“There is still a need for malls, it’s just a question of, ‘When are most customers going to feel safe to shop in a mall again?’” Ansara said. “They’re just playing the waiting game. (Mall owners) don’t have a lot of dollars to get creative.”

Malls were shut down for months in the spring and summer, which may further accustom consumers to shop online from home, Ansara said. 

“At this point I don’t think vacancy has changed significantly. I think landlords and tenants have been able to find solutions up to this point,” said Todd Leinberger, a retail broker at NAI Wisinski of West Michigan. “The fourth quarter is a question mark.”

Leinberger also noted the link between the financial stability of malls and restaurants. While casual and larger restaurant chains typically located in or near malls have faced challenges, fast food chains have performed well even without dining rooms, he said. 

“In many shopping centers and sites having food, drive-thru options will continue to command more of a premium than perhaps those other sites,” Leinberger said.

Major owners struggle, reorganize

CNBC reported in September that major mall owner Brookfield Property Partners LP planned to lay off 20 percent of its roughly 2,000 retail division employees. Brookfield owns malls in almost every state, including RiverTown Crossings in Grandville and The Crossroads in Portage. 

Brookfield saw its operational cash flow for the second quarter this year decrease by $23 million compared to the same period in 2019, which Brookfield Retail CFO Bryan Davis attributed in an Aug. 6 earnings call to pandemic-related shutdowns. Collecting rent from retailers was difficult during the shutdowns, though it has improved since June, Davis said.

Pennsylvania Real Estate Investment Trust Inc., which owns Woodland Mall in Kentwood, also struggled with collecting rent from retail tenants but saw a rebound in the third quarter. PREIT announced on Oct. 1 that it collected 67 percent of its second and third quarter rents for 2020. The company also saw most tenants on its properties reopen, with 4 percent failing to do so following pandemic-related closures.

“We are encouraged by the progress we are making across our portfolio, as evidenced by increasing rent collections, as well as increasing customer traffic,” PREIT CEO Joseph Coradino said in an Oct. 1 statement. “We are also pleased that, through our ongoing discussions with our lenders, we have reached a short-term agreement to extend our covenant relief period and now have flexibility to expand our liquidity facility.”

PREIT is focused on managing costs while working toward a “comprehensive financial restructuring” to strengthen its balance sheet, the company said this month. 

Woodland Mall Marketing Director Cecily McCabe said the mall’s tenants saw some pent-up demand for brick and mortar shopping when the mall reopened in June with limited hours. 

“We had lower foot traffic when we initially opened, but the people coming were there to shop, and shop well,” she said. 

Woodland Mall lost some tenants but did have 10 new shops this year for a net gain, McCabe said. Some stores have been more successful in reopening, including retailers where outdoor gear has been “flying off the shelves,” McCabe said.

Getting creative

Hassan has been working on a few creative concepts to help boost sales and foot traffic at Holland Town Center, including partnering with the Macatawa Market to bring in outside vendors to use vacant storefronts and outdoor space. 

“There are a lot of creative people in the area and people willing to go to different markets,” Hassan said.

Hassan is planning more market events in the future, including a holiday market, as well as a program in which local pop up shops can take over one of the vacant storefronts for a short period of time.

“We want to activate our vacant spaces at the center. Whether it’s for one day or one year, we are looking at letting local businesses or startups rent out the spaces,” Hassan said. “I think it will be a fun thing for the community.”

As an indoor mall, Woodland plans to increase the number of outdoor entrances for stores to help customers feel safer, McCabe said. 

Malls like Rivertown Crossings, on the other hand, have multiple levels and a mostly enclosed space, which could mean additional struggles, Ansara said. 

“It’s not doomsday, but it’s going to have its challenges,” Ansara said. “The local leadership at Woodland Mall and Rivertown Crossings are just trying to keep people calm, but things have improved a little bit. People are going to come back to malls eventually.”

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