Poaching isn’t limited to sub-Saharan villages in Africa or the Brazilian rainforests. No, poaching even happens in the Bay State – though these poachers have a much different face, and what’s happening here is not illegal.
This is a tale of retail poaching. It’s also the tale of two towns, two malls, and, maybe, the future of retail development.
It seems Target sees the writing on the wall in Plymouth, as well as Market Basket and Toys “R” Us.
Target is considering vacating the enclosed Independence Mall in Kingston, which has lost big box and small shop tenants alike, and relocating to the proposed open-air Cranberry Crescent retail and office development just up an extended Commerce Way in Plymouth. Market Basket is also mulling opening one of its large grocery stores at the proposed 315,000-square-foot project from High Rock Development. Nearby, Toys “R” Us wants to move from a site close to the Kingston mall to the open-air shopping plaza known as Colony Place, also on Commerce Way.
But that’s not where the poaching began. It began when Saxon Partners opened Colony Place in 2005. Companies large and small – including Old Navy, Best Buy, Lane Bryant and others – have closed their doors at Independence Mall and subsequently opened new stores in Colony Place, now about 98 percent occupied.
It’s not news that consumers – and, thus, retailers – have gravitated away from the older suburban mall model, where one long, contiguous rectangle of a building is filled with shopkeepers along a central corridor. At the end of that corridor lies a large corral-like space, called a food court, where usually at least eight or 10 chain restaurants offer victuals. Many malls, like the one in Kingston, feature entertainment venues like a cinema.
Regal Cinemas even decided to expand its movie offerings at the mall and build one of its IMAX-like RPX theaters, with higher resolution, larger theaters and a better sound system, a multi-million-dollar investment, said Thomas Bott, Kingston’s town planner.
Mass Exodus
But that hasn’t been enough to prevent an exodus of stores from the mall. On a recent visit, a reporter counted 20 empty storefronts of all shapes and sizes. At least four of the food court spaces were also vacant. All told, the mall’s occupancy rate has plummeted to about 63.3 percent.
And it hasn’t been enough to prevent the non-performing mortgage on the mall from being put up for sale to the highest bidder. C-III Realty Services brokerage has been retained to sell the loan, which was bundled into a commercial mortgage-backed security and was transferred to a special servicer in October. About 684,000 square feet of the roughly 834,000-square-foot mall is collateral for that loan.
The mortgage on the mall has an outstanding principal balance of about $71.7 million, according to information from C-III Realty. What will likely happen, if any interested investors can make the site work, is an opportunistic investor will buy the loan for a greatly reduced price, maybe for $30 or $35 million, according to industry sources familiar with the property. That investor will probably foreclose on the property and empty it out. Then the entity will likely embark in a dramatic repositioning project, either completely changing the use of the property, or keeping part of the retail and changing a portion or medical office space, or one of a long list of possible alternatives.
It’s ironic, but Saxon Partners, the Colony Place developers that, whether intentionally or not, poached so many tenants from Independence, has considered buying the note to turn the property around.
“We considered looking at it and just couldn’t come up with any brilliant ideas,” said Donald Smith, a partner with Saxon. “Old malls can be turned into outlet centers or have other uses. The old-style enclosed malls have been having a rough go at it. People prefer to shop in the open-air centers. It’s critical mass, they can go to … Dick’s Sporting Goods, or Talbots, and then to a restaurant to have a nice meal in the same place.”
Reduce Rents, Get Tenants
The sale of the note and a potential repositioning of the property could have great outcomes for a new owner. But the possible success of a reborn Independence Mall could be detrimental to the new retail just down the road, according to one retail plaza operator.
If the cost to buy the note is low enough for a new owner, they could decide to leave the mall essentially as is, and greatly reduce rents to attract tenants back to within its walls. That, in turn, could put enough pressure on other nearby shopping centers, causing their rental rates to fall or tenants to leave for cheaper digs, said Paul Bourque, director of leasing for Braintree’s DAI Properties.
“Overall, demand for large retail centers seems weak,” Bourque opined. “Unless it’s a great concept to reposition the retail space, [a new owner] will likely make at least part of the building a different use.”
Email: jcronin@thewarrengroup.com
