Struggling Malls Turn To Residential For Image Makeovers

Written by on 04.24.18 in Investment Trends, MultiFamily, Retail - No comments

The 1980s-era Margate Centre in Margate was showing its age, with an old roof, dated storefronts and a crumbling asphalt parking lot.

Still, developer Robert Cambo saw potential and bought the 190,000-square-foot plaza three years ago for $12.3 million, or about $65 per square foot.

Developer Robert Cambo is waiting for approvals from the city of Margate, FL for 220 middle-income apartments at the Margate Centre. (PHOTO CREDIT: Robert Cambo)

The reclamation project was harder than he thought.  Cambo filled some of the vacancies with two charter schools but struggled to find traditional tenants as brick-and-mortar retailing continued to lose ground to online shopping. So at the urging of his business partner, Cambo is redeveloping part of the 20-acre site at 5203 Coconut Creek Parkway with apartments for the middle class. He’s hoping to land city approvals in the next few months.

Margate Centre’s looming transformation is a model that more centers nationwide will follow, according to industry analysts. They say apartments, condominiums or single-family homes can be catalysts for reviving failed malls in the internet age because households bring a steady customer base and help attract grocery anchors, popular restaurants and “experiential” retailers.

Jack McCabe, a real estate consultant in Deerfield Beach, said residential makes sense in centers with functionally obsolete space. He also expects municipalities to start changing zoning laws to allow for developers to build residential above the retail.

“New, mixed-use developments incorporate residential, but now existing plazas are considering how residential may save the retail or may be a transition for a better use,” McCabe said.

Chuck Brecker, a Miami real estate lawyer, said developers have little choice but to be creative in finding alternate uses for retail space.

“They’re trying to monetize what, in many cases, is a failed center,” Brecker said. “They’re not in this to lose millions of dollars.”

Cambo said he had to pay three tenants to move out of Margate Centre so he could demolish about 70,000 square feet and add 220 apartments on the eastern eight acres of the property.

One-bedroom units will rent for $1,450 a month, two bedrooms will go for about $1,700 and three-bedroom apartments will cost $2,100, Cambo noted.  He doesn’t anticipate any trouble finding renters. Many young professionals can’t afford to buy a home or live in the luxury apartment towers going up in downtown Fort Lauderdale and other areas of South Florida.

“This will be right in their wheelhouse,” said Cambo, the managing partner of Alliance Cos. in Coconut Grove.

Rising rents and home prices have made affordable housing one of the most critical issues facing South Florida, experts say.

“It’s literally reaching a crisis stage,” McCabe said. “We’re getting to the point where we’re starting to lose local long-term residents who can’t afford the cost of housing here.”

The apartments at Margate Centre will reduce the supply of retail space in the central Broward market, helping nearby merchants, Cambo said. He wants to buy other Florida shopping centers and add residential, but he said available properties are tough to find because they tend to be in institutional hands.

South Florida retail consultant Beth Azor agrees that housing can help certain plazas, but she said it’s not necessarily easy assembling the space.

A zoning change may be necessary. And as Cambo did, landlords often have to buy tenants out of their leases. Some merchants don’t want to go or will drive hard bargains if they know their storefronts are a key part of a redevelopment plan, Azor said.

Ultimately, though, she’s skeptical about the long-term effect of combining housing with retail.

“Adding an apartment complex to a C-plus mall is not going to turn it into an A-plus mall,” Azor said. “It just delays the inevitable.”

Belmont Senior Living is building a 205-unit adult-living facility at Galleria Plaza in Fort Lauderdale.
(PHOTO CREDIT: Belmont Senior Living)

A developer previously proposed seven condo buildings totaling 1,250 units at the Galleria Mall on Sunrise Boulevard in Fort Lauderdale, though the plans were withdrawn last year after strong opposition from neighbors. But across the street at the 25,500-square-foot Galleria Plaza, Belmont Senior Living of Houston is building a 205-unit adult-living facility.

The Stiles real estate firm, which owns the center, took away 4,000 square feet of retail by selling an acre to Belmont last year for $5.25 million. The facility is expected to open in fall 2019.

Kyle Jones, a Stiles portfolio manager, said the firm is counting on the residential tower to attract tenants that can boost the neighborhood center’s image. The plaza doesn’t have any restaurants, but Jones hopes the new residents and the family members who come to visit them will attract a high-quality restaurant. Jones said Stiles is considering residential at other centers across the state.

“Every shopping center has good space and bad space,” Jones said. “By eliminating some of the less attractive retail and adding a residential use, you’re really killing two birds with one stone.”

 

Source: CoStar

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