FEATURE ARTICLE, AUGUST/SEPTEMBER 2010

SECOND LIFE FOR EMPTY BOXES
By Richard J. Kaitz, Paula G. Curry

When a big box location closes up for good, what’s left is often not pretty – an empty storefront, acres of asphalt, and ghostly “label scars” where signs used to be. The economic impacts from lost jobs, lost rents, and lost tax revenues can be devastating. Whether it’s the local car dealership that lost its franchise or the national retail junior anchor that has gone out of business, the situation leaves entire communities asking themselves “now what?”

The answer to that question is different for every site, depending on location, local market conditions, and, where an innovative reuse is proposed, the political will necessary to push a new project through.

Space in prime locations is always in demand, particularly in the Northeast where retailers are looking to upgrade to better locations or move into urban markets that they were formerly unable to afford. As a result, much of the vacant retail space is being reused for retail. For example, a major New England developer’s portfolio contained 15 former Linens N Things locations that went dark at the height of the recession. Twelve of these locations have already been returned to retail use.

Some large retail boxes are being subdivided into smaller, junior anchor spaces or are being converted into “store-within-a-store” concepts in desirable locations. Another trend for both prime locations and second-tier centers is “pop-up” stores, which includes seasonal merchants, such as Halloween stores, and more traditional retailers that want to test a new concept without making long-term marketing or lease commitments. One example of a test concept using pop-up stores is American Eagle’s 77kids stores, which will be rolled out as a permanent addition to the American Eagle line.

Some big boxes that were not former stores, if located in high-visibility areas with abundant retail traffic, are finding new life as retail and entertainment venues. For example, a recently closed Dodge dealership along the Route 128 corridor in Burlington, Massachusetts, has been razed to make way for a new entertainment-themed restaurant, Dave & Buster’s. The 12-acre site was formerly occupied by a concrete building assessed at under $500,000. Developers have estimated that the new building will cost in excess of $12 million, greatly enhancing tax revenues for the local municipality.           

A textbook illustration of a phoenix rising from the ashes is the Assembly Square Mall in Somerville, Massachusetts. A Ford Motors assembly plant in the 1950’s, the site became a supermarket distribution warehouse and then a classic 1970’s dumbbell-shaped mall, with anchor stores on each end and an enclosed mall between.

As the local market conditions changed, one of its anchor stores shuttered and the overall vacancy rate climbed. The mall’s mortgagee foreclosed. It was then sold at a deep discount to a partnership that saw its potential as a redeveloped retail center, but that also faced opposition from neighbors who wanted the mall converted to open space and mixed use.

Further complicating matters was the fact that the retail use was grandfathered under local zoning codes, and allowing the space to remain dark for an extended period could have resulted in that status being lost. The developers countered the grandfathering issue by renting to a pop-up retailer, thus allowing the retail use of the site to continue more or less uninterrupted.

Working diligently with the City of Somerville to overcome neighborhood opposition, the developer succeeded in backfilling the mall with a string of junior-anchor stores, such as Sports Authority, Staples, Bed Bath & Beyond, and Christmas Tree Shoppes.

Subsequently sold to Federal Realty Investment Trust, this former zombie mall has become part of an urban village being developed with strong government support. Over $65 million in federal and state stimulus money is being injected in this project through new roadway and other infrastructure improvements with the intended effect of jump-starting the next phases of development. This money includes $10 million from the Massachusetts Infrastructure Investment Incentive program, which was created to fund infrastructure projects that ignite private development. It is anticipated that IKEA will commence construction and open its long-awaited Somerville store within the next few years.

Far more speculative, however, is whether Westwood Station, slated for the former location of a General Motors parts distribution center and the surrounding area, will have the opportunity to take advantage of the allotted stimulus funds for this project and commence construction this year. Westwood Station includes, amongst others, big box retailers Target and Wegmans.

Amongst the many challenges faced by Westwood Station is how to finance a vertical mixed-use project where certain components of the project, such as the office uses, are in a difficult leasing market where new construction costs cannot be supported by currently projected rents and lease-up periods and existing space can be purchased at less than replacement cost.

Although high-profile developments tend to make news, it is often the cumulative effect of lots of smaller projects that ultimately spur economic growth. Filling even one empty storefront can generate traffic for a struggling retail center.

Of course, retail is not the only potential second life for an empty box. Around the country, unused commercial space has been reused in very creative ways – former warehouse space becomes an indoor mountain bike park, a glass-enclosed mall becomes an urban greenhouse, abandoned stores become libraries and museums.

Julia Christensen, in her book “Big Box Reuse” documents such interesting big box conversions as the Spam museum in Austin Minnesota (a former Kmart) and the Cavalry Chapel in Pinellas Park, Florida (once a Wal-Mart). At the California Club mall in Miami, R.K. Associates unconventionally replaced an empty Kmart store with a Miami-Dade County public elementary school in a shopping center with over 200,000 square feet of operating retail space after this re-use.

Interestingly, the Northeast has not yet seen much of this kind of ultra-creative reuse, perhaps because demand for prime retail locations remains high and the barriers of entry for ground-up development are also high. As the better locations are cherry-picked from the market, however, we may begin to see other locations being developed for less conventional uses.

— Richard J. Kaitz and Paula G. Curry, LEED AP, are attorneys in Sherin and Lodgen LLP’s Boston office. They represent shopping center owners and retailers throughout the United States.

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