The outlook appears bleak for many of the nation’s shopping malls, with owners walking away from some properties or readily handing them over to lenders.
A recent review by Bloomberg News of 118 shopping centers in the U.S. with commercial mortgage-backed securities loans showed values of the properties plummeted by 60%.
In Central Iowa, the outlook for regional shopping centers is more encouraging. A review of newly released assessed valuation data shows four regional shopping centers had minimal changes to the values of their properties. A fifth, Valley West Mall in West Des Moines, saw its valuation drop 25% between 2020 and 2021.
Property owners learned their 2021 property valuations in March. In Polk County, the value of commercial properties rose an average of 9.2%.
The shopping centers’ property valuations are a barometer of the local real estate industry and can reflect vacancy rates and income generated from leases. Properties with stable valuations likely saw little to no change in vacancy rates, and tenants in the past year were able to pay rents without major adjustments. Properties with drops in valuations likely saw an increase in vacancies and tenants unable to meet lease obligations.
In Polk County, “our regional malls are in a transition period right now,” said Bryon Tack, director of commercial real estate at the assessor’s office. “Owners of [three] of the properties are in the process of some pretty extensive redevelopment plans. …
“If they are successful with completing those redevelopment plans, we’ll probably see those valuations increase.”
Owners of Merle Hay Mall, located at Douglas Avenue and Merle Hay Road, have proposed repurposing former department store space into a multiuse arena. Valley West Mall owners have said they plan to redevelop their property to include a housing and entertainment complex. Several years ago, Des Moines Area Community College opened a satellite facility in former department store space at Southridge Mall, and more recently a Kansas-based health club announced it would convert the former Sears store at Southridge into an athletic club and multisports facility.
Altoona-based Outlets of Des Moines opened in 2017 as an open-air center that included some stores unique to the Des Moines area. The center’s valuation didn’t change between 2020 and 2021.
The valuation of Jordan Creek Town Center, located in Dallas County, slipped just 1% between 2020 and 2021, a review of records shows. The drop came from a decline in the value of the movie theaters located at the West Des Moines mall. The theaters were closed during the first weeks of the pandemic-related closures of many types of retail stores.
Oddly, drops in property valuations could be beneficial to lessees, said Tyler Dingel, a senior vice president at CBRE|Hubbell Commercial. Often, property taxes are passed on to tenants as a part of the leases. Lower property taxes mean lower lease payments, he said.
Nearly 23,000 retail stores closed in the U.S. in the past two years, and up to 12,000 others are expected to close in 2021, according to CoStar Group, a global marketing research firm. Many of the national chains that closed had stores in Des Moines-area malls. Many retailers were forced to close their doors temporarily because of COVID; some sought modifications in their lease agreements, including reductions.
“You’ve got a lot of tenants that struggled last year, and they still are not seeing much of an increase in foot traffic,” Dingel said. “Landlords are continuing to work with those tenants. If they are forced to kick them out of space, it’s a sign that [a center] is losing tenants instead of the sentiment of gaining occupancy.”
Until consumers are comfortable returning to in-person shopping, retailers will likely continue to seek reductions in the amount they pay on rent, said Aaron Hyde, a vice president and associate adviser for real estate company JLL, which has offices in Des Moines.
Still, he added, “There’s still retail activity going on here, it’s just not the same as it was pre-COVID.”
Hyde said retailers looking at locating in the Des Moines area are being cautious before making any moves.
Retailers that are making plans to open new stores “are hammering landlords because there are only so many of them out looking” he said. Entertainment-based retailers are waiting to make moves until they can be assured their stores won’t be closed again by public policy-related decisions, he said.
“Some of these guys are sniffing around but they haven’t pulled the trigger yet,” Hyde said. “They want to know that ‘we’re back open for business.’”
