The Core
Why We Are Here => Economics & Investing => Topic started by: rcjordan on June 12, 2018, 04:28:01 PM
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"I don’t think anybody really anticipated the decline of the department store to happen as quickly as it did”
https://www.bloomberg.com/news/articles/2018-06-12/owners-of-fading-malls-on-their-knees-as-buyer-pool-evaporates
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There has been some experiments in converting large enclosed suburban malls to a mix of urban -like residential and retail. Things like converting the empty department stores to condos or apartments and using big swaths of unused parking lots to make residential streets. I don't know how successful that has been.
The smaller malls around here are slated for demolition.
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"Not long ago, some of the biggest names in private equity, such as KKR & Co. and Barry Sternlicht’s Starwood Capital Group, were laying out substantial sums to snap up retail properties. In 2012 and 2013, Starwood purchased a combined $2.6 billion of malls from Westfield, followed less than a year later by a $1.4 billion deal to buy seven malls from Taubman Centers Inc. From 2012 to 2014, KKR bought four regional malls for about $502 million, Real Capital data show. That demand has all but evaporated as timing a wager on American malls becomes increasingly treacherous."
My field in Commercial Real Estate was Office Buildings.
https://www.bisnow.com/national/news/office/these-are-the-10-us-cities-with-most-vacant-office-space-54684#0
This January General Electric announced it would move its headquarters from Fairfield—where it had been for almost 40 years—to Boston's waterfront district. This is part of a larger trend: because of Connecticut's high business taxes, corporations are fleeing the suburbs for major metropolises, leaving Fairfield's offices largely empty.
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"I don’t think anybody really anticipated the decline of the department store to happen as quickly as it did”
I remember in the early 1990s, before Amazon was even a thing, reading articles about how retail space in the US was far above historical norms and far above countries of similar wealth/income. Whoever was writing those articles was all over that story... but I don't think anybody anticipated the decline would take as long as it did ;-)
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>long
Part of this is our car culture. We spent 100 years building everything to revolve around that car culture: suburbia, roads, along with malls and big box stores which can only survive in a high traffic automobile culture. We keep building suburban sprawl, strip malls etc. because we don't know any other alternatives and change in retail is happening so fast we don't know what to build, so we keep doing what we are accustomed to and so things linger on in a half-life.
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We spent 100 years building everything to revolve around that car culture
Are you familiar with the idea of "land banking"? I'm not sure I have the right terminology, but some urban planners and their cities have started building, say, parking garages that can be disassembled. The idea is to grab the land and put it to a use that a car culture wants/needs, but built so that if (and they say "when") car culture declines, that space has been "banked" so it can be used for something that makes sense 40 years from now (say, residential) rather than something that makes sense only now but would not be easy to convert (say commercial office space).
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>landbanking
To far advanced for around here. The Midwest is always 10 - 15 years behind The Coasts. We just keep doing what we did in the 1970's because nobody really gets it yet here.
Yes we do some landbanking: rails to trails to keep those abandoned ROW open but only because their was Federal money to do it, things like that.
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Actually, I think the first land bank was in Cleveland or somewhere like that. The Midwest has been dealing with what to do with spaces created due to "deindustrialization" for a long time.
What they may be slow to see in the Midwest is the end of car culture and that the same land banking ideas may need to be applied to shopping malls and vacant lots in downtowns.
I have to say, I remember my first extended stay in Grand Rapids (two weeks in 1998) and I was so surprised that there was so much in walking distance (1.5 mile radius) of where I was - shops, restaurants, grocery stores, big box stores, bookstores and for two weeks I walked everywhere and *never* encountered anyone on the sidewalks except one guy who looked homeless. I have been going back to Grand Rapids every two years for 20 years now (will be there in about three weeks) and I have seen a *little* change, but very little.
This compared to my five years in Madison, WI, where huge numbers of people go everywhere on bike and foot. I knew professional people who didn't own a car. One friend lost his job and he was so anti-car, he was biking seven miles to the airport with his interview suit in his bike panniers and then biking home... at midnight... in February, when the forecast was for 0F/-20C
All that to say that I think GR is going to have a tougher time with the death of the mall than Madison will (though Madison is anchored on three sides by three big malls - East Towne Mall, West Town Mall and South Towne Mall. Or at least it was 20 years ago).
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>going to have a tougher time with the death of the mall
I think deeply rural areas will be forced to maintain a car culture for a decade or more longer than the urban areas. Hubs with malls or strips that serve them might hang on for a while until drone deliveries to our doorsteps finish them off. We have plenty of small communities settlements wide spots in the road where residents have to drive 20+ miles for a convenience store and 30+ miles for a grocery store. I've read of families in Montana who carpool to go to the grocery store 200 miles away.
My hometown is one of these hubs --even so, there are plenty of landlords struggling to fill storefronts.
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You guys may like some of the info found on this site:
https://www.strongtowns.org/
https://www.strongtowns.org/journal/2018/6/6/just-when-you-thought-the-end-of-malls-couldnt-be-any-worse
https://www.strongtowns.org/journal/2016/7/13/the-shopping-mall-death-spiral
https://www.strongtowns.org/journal/2018/4/23/bon-ton-gone
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>strongtowns
"major problem with dying shopping malls: crime"
This brings up another couple of advantage of online shopping. Patron safety (and their physical accessibility) isn't a cost factor online. It's HUGE in malls, big in strips, and significant in individual stores. But that advantage likely pales when compared to the big one; shoplifting. One local Ace Hardware franchise told me that shoplifting was the real culprit behind why they shut down.
By taking all the standard business activity in a city — shopping for clothes and household products, getting a haircut, etc. — and moving them to the edge of town in areas built for and only accessible by car, we have robbed our communities of wealth. We inverted the standard design of cities that has been in place for centuries in which the necessities of daily life are located in the middle of town, accessible by the maximum amount of people who can take a simple walk to fulfill their basic needs.
Under that model, the closure of a few shops would merely mean that a storefront was now available for another business. Because traditional main street-type stores were built in a way that could accommodate many different sorts of businesses on a modest scale, a former tailor's shop could fairly easily be converted into a tavern — and the available space would be seen be hundreds of passersby on a daily basis.
Part of that is the rise of car culture, as Brad pointed out. But I think returning to "shops in a row on a busy city street" isn't going to be the solution, either. --The drones are coming.
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>shops in a row
I think you are right. You need a mix of restaurants and bars (nightlife) with some truly unique small retail shops mixed in. The kind of retail are shops that people travel out of their way to visit because of WOM recommendations. It could be handcrafted wares, local artisinal stuff, niche store that knows their niche better than anybody, but they need to be really unique. This way they reinforce each other, people coming out of their way to see a retail store are likely to stop for lunch at a neighboring restaurant.
Part of the problem with department stores, big boxes and mall stores is they are all selling pretty much the same stuff all made somewhere in the third world. The jeans at Macy's aren't that much better than Sears or Walmart. All the goods are coming off the same ships just different containers and labels. So for the consumer they can order the exact same thing from Amazon with half the hassle why not?
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>landbanking
I FEAR https://www.merriam-webster.com/dictionary/social%20engineering
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I FEAR
Well... the parking garage example is simply a case of building something useful today, but building it in a manner that it can be used for something else later without massive cost. It's more a matter of keeping options open while it's still possible.
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My local mall has added a bowling alley with a bar in it. That complements the movie theater nicely. A live theater stage would be a great addition. For seeing drama/musicals as well as live music.
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>landbanking
One of our local cities bought up square blocks of downtown. Tore down all the 100 year old buildings in the 1980's and 1990's hoping that they could lure strip malls or big boxes or slick corporate offices or something. Nobody came so they have big vacant lots and huge gaps in the main street. They destroyed all the urbanness that Millennials want, destroyed the neat urban character, drove out the businesses that had stuck it out through decades of decline and now they got empty blocks of weeds. They were a little too fast on the trigger and a little too top down in their planning.
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Yeah, I'm sure there are good and bad implementations. The only time I ever heard anyone speak about it, it was a case of an abandoned lot and they decided to build a non-permanent structure there so that as times and tastes changed, they would have land to work with. Sounded like a good idea.
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Urban gardens and urban farming are a more grass roots form of landbanking.
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>Urban gardens
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Related:
This is a bit of a puff piece, but it may identify a new trend.
https://www.bbc.com/news/world-us-canada-44349211
Given the perpetual craziness and gridlock in Washington, and inaction by states, many talented young people are going back home to small town America and bringing new ideas they discovered while living on The Coasts.
The also mention the Third Wave of the Internet, but don't go into detail, but it sounds interesting.
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>bringing new ideas they discovered while living on The Coasts.
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>>urban farming are a more grass roots form
So to speak ;-)
many talented young people are going back home to small town America
I think in-migration from the coasts is a big force. Perhaps more culturally right now, but perhaps a major economic force eventually.
Demographers say that it is almost unprecedented for people to be moving from high-wage areas to low-wage areas in large numbers as they are from the Bay Area, but they are.
A study by real estate brokerage Redfin found the Bay Area remains the top region for outward migration in the country.
https://www.mercurynews.com/2018/02/08/packing-up-and-moving-out-bay-area-exodus-continues/
I keep wondering where the baristas, teachers and cops for all the wealthy Silicon Valley engineers and business analysts are going to come from.
As for California as a whole, I heard one commentator say California could start losing US Representatives, probably not in the 2020 census, but possibly in the 2030 census.
California as a whole as substantial net out-migration, fueled primarily by lower income and younger people.
http://lao.ca.gov/LAOEconTax/Article/Detail/265
If that keeps up, California is going to have to follow Vermont and pay young people to move there: https://www.forbes.com/sites/laurabegleybloom/2018/06/03/vermont-wants-to-pay-you-10000-to-move-there-and-work/
As it is, farmers in California are moving their operations to Mexico, because, even at $21/hour, they can't find celery pickers and some farmers have stopped growing strawberries and vine-ripened tomatoes because there is not enough labor available to harvest them.
One farmer on a recent Planet Money episode said (roughly, from memory): "I'm hiring Mexicans to pick my crops either way. I'm either doing it by bringing Mexicans here or by moving my crops there, but one way or another, a Mexican is harvesting your food."
Full episode: https://www.npr.org/sections/money/2018/05/04/608578696/episode-839-the-indicator-goes-to-california
[I think my mind has been destroyed by Wikipedia]
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>Farmers
There are other pressures especially for truck farm crops. Local hydroponics is getting big. We have a large hydroponics operation about two miles from here growing green stuff for fancy salads in upscale Chicago eateries. Back in the old days there were numerous dirt growing truck farms around here with rows of small shacks for migrant workers, just to grow vegetables for the Chicago market. Now those fields are subdivisions, the shacks in ruins and hydroponics stepping in to replace the stuff picked hundreds of miles away that tastes like cardboard.
Costco's member magazine just had a big article about crops grown hydroponically just for Costco.
Heck, all winter long we get fancy perfect looking tomatoes from the Netherlands that I'm pretty sure are grown hydroponically.
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But the problem these farmers are having is not with demand, but with finding enough labor to meet the demand.
>>hydroponics
Quick question: what nation is the second largest ag exporter in the world in value, after the US?
The Netherlands has become an agricultural giant by showing what the future of farming could look like.
https://www.nationalgeographic.com/magazine/2017/09/holland-agriculture-sustainable-farming/
Which, perhaps, might serve as a model for what could be done with all these shopping malls in America. If you turned every closing shopping mall into a Dutch-style farm, what would that do for local produce? These farms require a fraction of the labor, pesticides, land and water as an American farm. More upfront investment. Possibly more energy, I don't recall about that (but if you have enough solar and wind, that doesn't matter).
Won't work well for wheat, but people keep telling me that stuff is poison anyway.
>>hydroponically just for Costco
I saw a video looping in Costco. It's impressive. Very similar to what the Dutch are doing at scale.
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#Out-migration
Keep your eye on high tax states.
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>>California
My real estate agent in Spokane said one of the big drivers of the real estate market is people moving from California and specifically the Bay Area. They can sell their small house for $1,000,000 and put a cash offer on a $250,000 house. And the house is bigger and in a better neighborhood. That is driving the prices up and hurts people who can't put that kind of cash offer on the table. Makes it hard for the guy making $50K a year to afford a decent house let alone someone making $15 an hour.
So California is not only pricing itself out of the market, it is making it tough on the places where the people are moving.
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DRIVING PRICES UP
Years ago when we moved from Hawaii to Oregon we would never tell folks we were originally from Calif. Oregonians HATED the Californians for moving into the Potaland area and driving prices up.
In another example the Google crowd and other silicone valley types ran the prices UP in Incline Village, Lake Tahoe NV and HATE followed.
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Makes it hard for the guy making $50K a year to afford a decent house let alone someone making $15 an hour.
This has been hitting the news lately
https://www.cnn.com/2018/06/14/us/minimum-wage-2-bedroom-trnd/index.html
Incline Village, Lake Tahoe NV and HATE followed.
It's the entire Tahoe region. Last winter while visiting friends, almost every retail outlet had "Help Wanted" signs, but at $15/hr it doesn't pencil out for people. They often have to sleep four to a room to make it work. Meanwhile, for merchants, paying $35/hr for cashiers means they are not price competitive.
Everything there feels like it's at a breaking point. There are some initiatives for affordable housing, but these are tough too. They used to have a stock of houses in Mammoth that could only be purchased by Mammoth residents. You got some subsidy to buy the house, but had to sign a contract that you would only sell it to someone with a full-time job in the community. But during the peaks of the drought, there was no skiing, tons of people lost their jobs and there were not enough locals to buy all the houses that came on the market, so they had to let people sell them on the open market. Now the affordable housing stock is much reduced.
That was when I first started asking, "Who is going to serve lattés and sell groceries to all the wealthy people coming up from the Bay Area?" If they want to vacation in Truckee, they are going to need to get used to $12 cups of coffee, etc.
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Hope springs eternal in the human breast.
The largest mall in the US is coming to Miami
http://www.businessinsider.com/largest-mall-us-american-dream-miami-2018-5
>Miami
That's a good place for it ...far, far away from me.
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All these huge projects, like this mall and sports stadiums and stuff are a joke. Real progress is more bottom up: take a couple of blocks of downtown buildings and rehab them to their former glory as part of a plan for that district for leasing. Has a better chance for lasting success.
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>>mall and sports stadiums and stuff are a joke
Have you read David Cay Johnston's book (it might be called Free Lunch... title has that in it)?
He points out that almost every one of these mall/stadium projects results in a net loss to the community - loss of jobs (mom and pops go out of business), loss of tax revenue (sweetheart deals for the new merchant, loss of straight tax from old merchant), etc. Typically, the only beneficiary is the mall or stadium owner and most of these projects would never have been economically viable on their own merits.
They are often rent-seeking schemes where the model is to convert tax revenue into personal revenue.
I wonder how much expiring sweetheart deals plays into all this.
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We have an old mall that was converted to county offices 2-3 decades ago. Great location with good parking, middle of downtown where parking is becoming an issue. They've just approved a 10 year plan to raze and build a 600 apartment/condo facility, 300 room hotel, parking garage, etc. with a new building for county offices.
The whole reason? To collect tax on the property.
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>Free Lunch
I'm aware of it or it's findings. The guy is right.
Never bet everything on one flashy project. The best, most enduring, development is not sexy but based on bootstrapping and is incremental. Takes a long time but you avoid white elephants.
It has to pass the selfdogfood test: would I use it? If you build something for yourself, something you would use, it goes a long way towards being enduring.
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"Destination Malls" are rare. South Coast Plaza is ONE
https://en.wikipedia.org/wiki/South_Coast_Plaza
https://www.travelcostamesa.com/pdf/CM_SouthCoastPlaza_map_directory.pdf
I had breakfast with Henry Segerstrom and others every Wednesday morning at 7:30 for over a year. It is all about politics.
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>destination malls
The very concept is unsustainable. "Destination" lasts about 20 years and then becomes old hat and everybody has gotten bored with it or you have to continually up your game to keep it a destination. And even when you up your game society changes and something comes along which undermines your business plan. Ask Coney Island, Riverview etc.
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Brad:
There are no absolutes. There are exceptions to every rule.
South Coast Plaza has been there for 51 years.
The local economy and demographic have a lot to do with it - imo
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Malls Vacancies Hit Six-Year High as Online Shopping Takes a Toll
https://www.wsj.com/articles/mall-vacancy-rate-hits-six-year-high-1530588600