Struggling CT malls need help and experts say officials should step in

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Brass Mill Center in Waterbury, Ct. was sold last year. Now, retail and economic experts are saying Connecticut officials need to take a more active role in restoring retail centers to health.

The Crystal Mall in Waterford was the subject of an online auction earlier this month. Retail and economic experts say Connecticut officials need to take a more active role in helping malls with large number of vacancies return to economic heath.

With Connecticut malls being sold at a comparatively brisk pace and vacancy rates at regional shopping malls nationwide at above 11 percent, economic and retail experts say the time has come for state officials to take a more proactive role.

Four of Connecticut's 10 largest shopping malls have sold in the past four-and-half years and a fifth is likely to change hands after being auctioned off earlier this month. The recent online auction of the Crystal Mall in Waterford has once again brought into sharp relief the overall health of shopping malls in the state.

Donald Klepper-Smith, an economist with DataCore Partners in South Carolina, said state officials have a vested interest in doing as much a possible to ensure the success of the retail sector in the state.

"If the retail environment is not being executed properly, it results in lost sales tax dollars," Klepper-Smith said.

But state officials are reluctant to take action and are more focused on other economic development priorities. Connecticut Department of Economic and Community Development Commissioner Alexandra Daum told CT Insider that the health of the state's shopping malls is not among her top concerns.

"I'm more concerned about the impact vacant downtown office space has on surrounding property," Daum said. "Malls sites are pretty much self-contained; you don't have houses located across the street. But with downtown office space, there's more of a direct impact for people in terms of the livability and environmental impact in the surrounding area."

How is a mall's success or failure judged?

One measure of it is how much retail space is vacant at any given time. Burt Flickinger, managing director of the New York City-based retail consulting firm Strategic Resource Group, said when a has less than 75 percent of its space leased, "that's often the borderline for financial viability."

But mall owners often decline to reveal what kind of vacancy rates their properties have, contending the information is proprietary.

The impact that a distressed shopping mall can have on a local economy can be far reaching, said John Clapp, an emeritus professor of real estate at UConn.

"It is something that affects local employment and casts a blight on surrounding properties and to some extent the host community as a whole," Clapp said. "It's puzzling to me that DECD hasn't developed policies to address this."

David Cadden, a professor emeritus at Quinnipiac University's School of Business, said one role that the state could play in addressing the mall issue is commissioning a study on what might happen if any of them were converted to some alternative use.

"Just the arrival of malls had a negative impact on downtown businesses in communities, changing how a mall operates or converting it to some other use could have deleterious effect on the host communities," Cadden said. "It would be nice to know beforehand what the economic impact might be."

The belief that state government has no place getting involved in the mall issue is naive, he said.

"I don't think people realize how frequently state governments tip the scales in favor of those who have money in the economic development process," Cadden said. As an example, he noted how the state played a prominent role in converting the former Scovill Brass Works in downtown Waterbury into the $120 million Brass Mill Center, which opened in late 1997.

Nearly two-and-half decades later, Brass Mill Center is a mall that is in need of an infusion of tenants and an upgrade of its physical plant. Mayor Neil O'Leary told Hearst Connecticut Media last year after Brass Mill Center was sold to Kohan Retail Investment Group of Great Neck, N.Y. that the mall "has been failing steadily for the past 10 years."

Klepper-Smith said Connecticut officials should view distressed shopping malls the way it view polluted commercial sites.

"When you're talking about the environment, we have brownfields that are being repurposed for a new type of use," Klepper-Smith said. "And if we are repurposing manufacturing brownfields, it makes perfect sense to do the same thing for retail properties."

Clapp said the prices at which Connecticut malls have been sold "are so cheap that the buyers can afford to hold onto them for a long time" without making dramatic improvements to the property or significantly increasing occupancy levels.

"It's what is called holding for an option," he said. "The buyers are able to generate enough income from a mall's remaining tenants and get enough reductions in property taxes that these properties remain profitable for quite a while. They are holding on until some good future option presents itself."

Daum said there are DECD community investment programs that could be used for improvements that might benefit mall properties under the right circumstances. But for a plan like that to happen, she said "it would need hit a lot of policy goals across the board, but the possibility exists."

"There are tools that could be used to prod mall owners to be more proactive, according to Clapp. One idea, he said, would be to require that contracts entered into when malls are sold contain "a clause with an expiration date."

"It would give the new mall owner a reasonable period of time to make improvements, make changes or come up with some sort of alternative use," Clapp said. "A 'use it or lose it' clause."

Another public policy option, he said, could be to institute a tax on long-term vacant space.

Daum said suggestions that public policy measures could be used to fix distressed malls or push mall owners toward action are problematic at best.

"I think you've got to be really careful limiting what people can do with their own property," she said. "These are large very buildable plots of land. Sooner or later, somebody is going to look at these properties and see and opportunity to do some with the land that makes sense."

Flickinger said another public policy move that Connecticut officials might consider trying is creating economic development zones in communities that host troubled malls.

Economic development zones, or Opportunity Zones as they are sometimes called, allow people to invest in distressed areas. They are designed to spur economic growth and job creation in communities while providing tax benefits to investors.

Another option Connecticut officials might consider, Flickingar said, is encouraging hospitals and other health care organizations to locate some of their operations in vacant mall space in an effort to increase foot traffic.

"It's a trend known as Medtail," he said.

According to data from CoStar Group, the proportion of leased medical space in retail buildings has grown from 16 percent in 2010 to 20 percent now.

An example of medtail in Connecticut is being done at the Meriden Mall where Yale New Haven Health is looking to turn a 179,285-square-foot, two-story former Macy's spot into a comprehensive ambulatory center. Plans for the facility were announced in 2021, but Yale New Haven officials said Friday that the project is still in the planning stages.

"Like many health systems across the country, Yale New Haven Health is facing headwinds stemming from the COVID-19 pandemic and the current economic climate," a statement released by healthcare organization said on Friday. "We are being very thoughtful in our planning and will update everyone as we move forward."

Another potential adaptive use for converting vacant mall space into something more useful is being tried in the Boston area.

California-based Alexandria Real Estate Equities has submitted plans to convert the Watertown Mall into a 24.5-acre lab campus, with a multi-building project that would span nearly 1 million square feet. Biotech laboratory space is also in high demand in Connecticut, particularly in the New Haven area.

But Daum questioned whether a similar proposal would work in Connecticut.

"Construction costs aren't all that much different when compared to Boston," she said. "But it would be hard to justify building new lab space when rents are comparatively lower."