The row of blacked-out stores at Heather Croft Square gives the impression of a retail ghost town. For more than 20 years, the big draw at the shopping center on Tilton Road in Egg Harbor Township was a Superfresh, until it closed in 2007.
The impending recession gutted the center. A dollar store went bust, a lending company left and a dinette and bar stool supplier shut down. Larry Delany watched helplessly as his neighbors’ stores suffered.
“You’d need to sell a lot of bar stools,” said Delany, whose Tilton Frame Design has been at the center since 1987. His business has not been immune either: Sales fell 10 percent last year.
But as he looked out the front window of the store recently, he was smiling. Through new ownership, the Superfresh site is being converted into a 28,000-square-foot produce store, that will inevitably draw more traffic. A Retro Fitness gym moved in last fall, and now the parking lot has cars in it at all hours of the day.
“Look at the columns and the signs,” Delany said of the center’s faded appearance. “Now, with a new owner, there’s going to be all new frontage.”
The potential success of Heather Croft Square would be a standout during a weak economy, one in which vacancy rates hit an 18-year high at U.S. strip malls in the fourth quarter of 2009 and a 10-year high at large regional malls.
Many higher-end properties and those with discount retailers have suffered similarly, real estate analysts say.
“The challenge we have in our area right now is stability of the casino market and employment, and people are not spending money in the retail stores,” said Richard Baehrle, vice president of commercial real estate for Vanguard Property Group in Egg Harbor Township. “If they’re not spending the money there, those places are not going to be stable.”
Retail operators falter
The alarms were ringing for retail mall and strip center operators a year ago, when major chains such as Circuit City and KB Toys prepared to go out of business after a weak holiday shopping season.
In April, Chicago-based General Growth Properties Inc., which operates four malls in northern New Jersey, filed for one of the largest commercial real estate bankruptcies ever after struggling with a $27.3 billion debt load. Its malls remain open as it works to restructure its debt.
Retail property owners must have a continuing pipeline of money to stay afloat, said Suzanne Mulvee, a real estate strategist with Property & Portfolio Research, a Boston-based firm owned by CoStar.
“Cash is king,” Mulvee said. “It gives (property owners) more options to boost traffic flow within their malls. That helps their tenants stay alive.”
In September, Taubman Centers Inc., of Bloomfield Hills, Mich., reported a negative cash flow with its luxury shopping mall in Atlantic City, The Pier Shops at Caesars, and said it did not think it could pay off its $135 million mortgage. A company spokeswoman said last week that a plan to turn over the property to lenders is still in negotiations.
Mall operators are being pounded by a decline in consumer spending and falling retail rents.
U.S. strip mall rents fell
0.5 percent to $19.12 per square foot in the fourth quarter of 2009 from the third quarter, according to real estate research firm Reis Inc.
Meanwhile, the asking rent at large regional malls fell 0.4 percent to $39.03 per square foot, while the vacancy rate increased to 8.8 percent from 8.6 percent in the third quarter. It was the first time in nearly 10 years that Reis reported five straight quarters of rent declines.
Dead malls
The Shore Mall in Egg Harbor Township was reportedly in jeopardy of closing after its anchor, Boscov’s, filed for bankruptcy protection in 2008 and threatened to go out of business. It has since come out of bankruptcy and is adding staff.
The department store’s survival was especially critical after Value City closed that same year. Shore Mall, which opened in 1968, is made up primarily of smaller, independent retailers as opposed to the national chains with greater access to capital.
There are nine vacant spaces inside the mall, with more than 170,950 square feet available of the total 620,000 square footage, according to the Web site of its owner, Cedar Shopping Centers Inc., of Port Washington, N.Y.
The company, which has 122 shopping centers, reported revenue was up 6 percent and its cash and cash equivalents increased nearly 16 percent to $9.53 million during the first nine months of 2009. Its cash and cash equivalents were still down almost 60 percent from the beginning of 2008.
Executives of Cedar Shopping Centers did not return telephone calls last week. CEO Leo Ullman has previously said the mall needs to be redeveloped.
But with a decline in consumer spending, he told analysts last fall that the company is sticking to its “bread and butter” real estate and staying away from “fashion and more discretionary types of stores.”
Shore Mall visitors surveyed recently said they were happy with some of the discount stores but that they don’t go to that mall simply to “hang out for the atmosphere.”
The mall has the dubious distinction of being listed on Deadmalls.com, a Web site dedicated to those with an “occupancy rate in slow or steady decline of 70 percent or less.”
Chantel Basley, of Atlantic City, said that she would go to the Shore Mall if it had more variety in clothing stores and more to do. The only reason she was there last week, she said, was to visit the Motor Vehicle Commission.
“I wish (the Shore Mall) was more like the Cherry Hill Mall,” Basley said. That mall received a $240 million makeover last year from its owner, Pennsylvania Real Estate Investment Trust, or PREIT, and features a Nordstrom, JC Penney, H&M and Urban Outfitters.
Still, the environment was tough last year for PREIT, which owns more than 50 properties, including the Cumberland Mall in Vineland. It faced a growing vacancy rate and $2.8 billion in outstanding debt.
Southern New Jersey may be ‘overmalled’
Ed Streb, a communications professor at Rowan University in Glassboro, said malls were going through a “shakedown period” even before the recession.
The new building trend has been away from enclosed regional centers and instead creating “lifestyle centers,” said Streb, who has taught a seminar on how developers lay out shopping malls. Such centers mix traditional retail with leisure amenities and entertainment. They also don’t require the typical 70 to 80 acres of land.
“For consumers, they don’t want to spend their time walking the length of enclosed malls,” Streb said. “The most valuable commodity in the 21st century is time.”
Streb said the region remains “overmalled,” and weaker properties that don’t upgrade face difficulties. He ranks malls with a letter grade, and said modern, fresher properties such as the Cherry Hill Mall can be considered an A. He gave the Hamilton Mall in Mays Landing a B, and the Shore Mall a C.
“The A malls are going to survive,” he said. “It’s the B malls that should upgrade, and the C malls, if they don’t do anything, can potentially close.”
One option to invigorate a retail center is to bring in popular stores, but that is not always easy, said Ted Leonard, a sales associate for Legend Properties Inc., a full-service commercial real estate brokerage company that specializes in retail leasing.
The national retail chains are more selective prior to signing a lease compared to two to three years ago when the market was at its peak, Leonard said. Potential tenants have more options and fewer deals to complete this year, he added, and scrutinize an area’s demographics much more closely.
Besides leasing stores at Heather Croft Square, Leonard also is preleasing 46,450 square feet of an approved shopping center at Avalon Boulevard and Route 9 in Middle Township, Cape May County. The stores would join an existing Acme supermarket.
“It’s a great example that during the current economic climate, developers are still doing deals,” Leonard said. He is working to secure tenants.
Contact Erik Ortiz:
609-272-7253
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