A tale of 2 malls: Partridge Creek is in trouble, Village of Rochester Hills isn’t. What’s the difference?
A pair of open-air shopping centers not so far apart are facing different fates.
The Mall at Partridge Creek in Clinton Township is looking down the barrel of receivership after its Miami Beach, Fla.-based owners defaulted on a $725 million mortgage, buckling under the weight of massive debt, the COVID-19 pandemic and e-commerce.
Tenants, in particular its anchor department stores that took up some 41 percent of the square footage, have fled.
About 16 miles away, the Village of Rochester Hills is about 95 percent occupied and regularly adds new businesses to its roster that includes a Von Maur luxury department store to open next year and the Whole Foods Market Inc. store that serves as a daily and weekly draw. It also recently it lassoed Robert Redford’s Sundance Catalog, Busted Bra Shop and Beautiphi Aesthetics and Wellness.
The differences between the two malls? Experts say they lie in design and planning — and also in borrowing.
The centers’ futures will be determined in the months and years ahead as the fallout from a global public health catastrophe continues to become clearer and as the retail landscape continues its mass reorganization caused by the growth of Amazon.com Inc. and online shopping overall.
Partridge Creek’s current owner, the real estate giant Starwood Capital Group — which bought the mall in 2014 as part of a $1.4 billion deal with what was then Taubman Centers Inc. (now Taubman Co. LLC) for it and six other malls — declined comment through a spokesperson.
On paper, Partridge Creek should be outperforming the Village of Rochester Hills, says Robert Gibbs, an urban planner who worked on the latter’s master plan.
There are more than 200,000 people within four miles of the Partridge Creek site, compared with 95,000 for the Village of Rochester Hills, located at Adams Road and Walton Boulevard. Vehicular traffic at the former exceeds the latter.
Household incomes are comparable, with the average household income around Partridge Creek being $100,000, compared with $120,000 for the Village of Rochester Hills.
And although Partridge Creek is densely surrounded by potential shoppers, the Village of Rochester Hills has substantial rural areas to the north, northwest and northeast, said Gibbs, who is principal of Birmingham-based Gibbs Planning Group.
In addition, Partridge Creek’s location just two miles from Lakeside Mall should have worked in its favor as open-air lifestyle centers tend to pull shoppers from nearby indoor regional malls, Gibbs said.
A stronger nearby office market also should have worked in Partridge Creek’s favor, providing daytime lunch traffic to restaurants.
No lid on growth? “A mall without a roof.”
Time and time again, that’s a phrase that retail and planning experts use to describe The Mall at Partridge Creek in Clinton Township, on the ever-busy M-59/Hall Road corridor that has some of the densest shopping in Southeast Michigan.
Bookended by a pair of department stores, Nordstrom and what at the time was Parisian, the 600,000 square-foot-plus mall has lost both in the retail reckoning, the former in 2019 and the latter in 2018 after it was renamed Carson’s.
“The demise of shopping centers ultimately have been the closure of department stores that have led to lower foot traffic for all the in-line retailers,” said Luke Bonner, senior economic development adviser for Sterling Heights and CEO of Ann Arbor-based economic incentive, real estate and economic development consulting company Bonner Advisory Group LLC.
“You have dead-ends at the mall,” Bonner said. Those stores, called “in-line” retailers in the business, count on department store shoppers to provide them foot traffic. “They bring 35 to 40 percent of all shoppers,” Gibbs said.
When department stores go dark, the symbiotic relationship is interrupted.
New blood in Rochester Hills
The Village of Rochester Hills, however, has been able to lure new tenants for a host of reasons.
First, the Whole Foods Market serves as a regular draw for customers to other businesses in the center, Gibbs said. Unlike department stores, for example, grocers tend to bring in customers with greater frequency.
Although the Nino Salvaggio’s market at Partridge Creek draws shoppers, it’s on an outlot and not within the shopping center itself like the Whole Foods is at Village of Rochester.
“Partridge Creek is nice, don’t get me wrong,” said Randy Thomas, head of Commerce Township-based Insite Commercial, which is working on the Five & Main open-air shopping center in Commerce, which has been in the works in some fashion for more than two decades.
“But they designed it around these big boxes, and what happens when there is no one there to occupy them? Or when the next tenant to occupy them is not a real complement to the center,” Thomas said.
In addition, a more convenient parking setup allows customers to drive up to the storefronts, unlike Partridge Creek, where parking is situated along the outside, more like a traditional indoor mall.
Bruce Aikens, vice chairman for developer and owner Robert B. Aikens & Associates LLC, said the 375,000-square-foot Village of Rochester Hills is about 95 percent occupied.
Aikens is also the developer of Five & Main, which has seen some of the residential development by Farmington Hills-based Hunter Pasteur Homes and Atlanta-based PulteGroup Inc. materialize the last several years.
The Village of Rochester Hills was formerly the Meadowbrook Village Mall but was redeveloped and opened in 2002 in a $90 million project. Like Partridge Creek, it also lost its Carson’s store but it was replaced by the Von Maur, which is expected to open next year.
Not just the endcaps
The department store closures in Partridge Creek don’t tell the entire story.
A source familiar with the matter described them as having helped lure popular retailers like Apple to Partridge Creek, a key source of foot traffic.
In addition, there were opportunities to quickly retenant the closing Carson’s and Nordstrom’s stores, but the debt load “froze” Starwood Capital Partners, the source said, and deals never materialized.
Data from Trepp LLC, a New York City firm that tracks commercial mortgage-backed securities loans like those that Starwood Capital Group took out, shows that the four malls securitized by the $725 million loan were appraised at the end of March 2020 at $366.7 million, a little more than half the original loan balance, which now sits at $681.6 million.
Other outdoor shopping centers have faced difficult times in the past.
For example, the Fountain Walk development in Novi, which cost $115 million to build on 74 acres with more than 700,000 square feet, went bankrupt just two years after it opened, with many of the retail spaces still in white-box condition.
But today, under its new ownership and now named Twelve Mile Crossing at Fountain Walk, the property is more than 90 percent occupied, said Michael Zimmerman, who owns the property with his Green Earth Realty LLC. He inherited it from his late father-in-law.
It counts Emagine Entertainment Inc. as a key tenant along with Floor & Decor, Powerhouse Gym and Dick’s Sporting Goods.
Lucky’s, a restaurant and billiards club, closed its roughly 60,000 square feet and Zimmerman said he is close to signing The Hub, which has a location in Auburn Hills, to occupy the former Lucky’s space.
Face of uncertainty
Partridge Creek’s future likely won’t be known until its debt debacle is unraveled and its revenue decline can be reversed.
“Discussions with Borr (borrower) have not resulted in an acceptable resolution strategy, therefore SS (special servicer) has entered into discussions with a receiver and plans to move forward with legal proceedings in each jurisdiction to have the receiver appointed at each property,” loan commentary for Partridge Creek reads. “Borrower has been cooperating with the transition.”
Between Jan. 1, 2018, and Dec. 31, 2018, the mall brought in $20.38 million. A year later, between Jan. 1, 2019 and Dec. 31, 2019, it brought in $17.68 million. The most recent one-year period available, Oct. 1, 2019 to Sept. 30, 2020, revenue was $14.63 million.
Net operating income for the mall during those three periods fell from $11.13 million to $6.71 million, according to Trepp.
But still, the mall will still have broader market forces to deal with, such as the rise of online shopping and the decline of department stores.
“The whole retail experience — whether we like it or not — has been forced upon us and will be different,” Thomas said.
“Shopping centers in the past, the developer would go in and give anchor stores the land, somewhat subsidize them and they filled in everything in between. You can’t do that today. Retail is thought differently. We’ll see some expand, some contract, new ones will come and others will go away, and I don’t think we’ll know where retail is going to settle for the next year or year and a half.”
Posted By: Crain’s Detroit Business on May 23, 2021. For more information, please click here to read the source article.
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