The future of the suburban shopping mall could look something like a mini community, with far fewer places to shop.
The U.S. mall owner Macerich announced Thursday it’s sold a majority stake in Paradise Valley Mall in Phoenix for $100 million to a joint venture with an affiliate of the Phoenix-based, mixed-use real estate company RED Development. The partners will convert the 92-acre site into a community with homes, offices and a grocery store.
The 1970s-era Paradise Valley Mall has been rezoned to allow the sprawling plot of land to include high-end grocery options, restaurants, 3.25 million square feet of residential space, office buildings and some retail shops.
“As the retail landscape continues to evolve here in Arizona and around the country, our decision to realize the market value of this non-core asset makes sense for Macerich,” Macerich President Ed Coppola said in a statement.
Malls packed full of clothing, footwear and other retail shops are looking for a new life, as more consumers buy online and skip trips to dated department stores and archaic food courts. This transition was only accelerated by the Covid pandemic, which has kept many Americans stuck at home, surfing the web.
Market share and shopper traffic has also increasingly shifted to off-mall retailers like Target and Walmart. One consumer research firm, Coresight Research, has estimated that 25% of America’s roughly 1,000 malls will close by 2025. Oftentimes, as one or two department stores in a mall close, that triggers a wave of closures by other businesses within the mall, leaving the owner no choice but to look for new uses or get rid of the property entirely.
“America’s malls have reached the end of their useful life,” said Mark Toro, a managing partner in Atlanta of real estate developer North American Properties. ”Communities across the U.S. have turned their backs on what was once their center.”
“These properties often occupy real estate that would best be repurposed to better serve the community,” he said.
A few malls are becoming e-commerce warehouses to meet retailers’ rising demand for industrial space. Amazon, for example, opened a distribution facility where Randall Park Mall used to sit in North Randall, Ohio. It’s also taken over Euclid Square Mall in Euclid, Ohio.
Inside a mall in Burlington, Vermont, meantime, kids are now attending high school in what used to be a Macy’s department store.
The future of each struggling mall will likely be case by case, dependent upon the surrounding town’s needs, experts say. It could entail demolishing the property entirely, and undergoing rezoning, for a new community. In some instances, developers will view the land that the mall sits on worth more than the mall itself.
Macerich, which owns or has interests in 47 regional shopping centers, said the transaction with RED Development closed this past Monday and generated net proceeds of about $95 million. It will retain a 5% stake in the project through the venture.
Macerich shares were up less than 1% Thursday, having risen about 10% year to date. The real estate owner has a market cap of $1.94 billion.