Why developers are building housing at shopping malls

Say hello to life at the mall. 

The classic American mall is undergoing a dramatic transformation as real estate developers swap out dying department stores for apartments, ushering in an era where living at the mall could soon become a new norm.

Some U.S. developers are knocking down department stores like Macy’s or JCPenney and using the spaces and their parking lots to put up apartment buildings next to the mall or connected to it via walkways and green spaces. In other cases, they’ve built apartments inside of shuttered storefronts and other shopping center properties or gutted them altogether to make way for a mix of housing, retail, restaurants, outdoor spaces and experiences. 

“The mall is becoming cool again,” said Jacob Knudsen, the vice president of development for Macerich, which is currently redeveloping the FlatIron Crossing Mall in Broomfield, Colorado to add housing. “So being able to live by it, work by it, play by it, go to restaurants by it, we’re definitely seeing this as a trend.” 

This new version of the American mall comes as shopping centers across the country fight for survival and look to transformation to avoid extinction. It’s clear that consumers still enjoy shopping in person after the Covid pandemic, but the traditional anchor department store has been in decline since 2001 and is no longer the draw it once was.

As companies like Macy’s, JCPenney and Sears shrink or cease to exist altogether, real estate developers have been forced to get creative to repurpose those spaces, which typically take up at least half of a mall’s footprint. 

Amazon distribution centers, pickleball courts and even an NHL training facility have all replaced big-box stores at American malls. But as the country contends with a housing crisis, the fastest growing use of these spaces is apartment complexes, real estate developers said. As of January 2022, at least 192 U.S. malls planned to add housing to their footprint, and at least 33 had constructed apartments since the pandemic began, according to Realogic, a real estate consulting firm. At least a dozen more apartment projects are underway at malls across the country, including in California, Florida, Arizona and Texas. 

“There’s just too much retail in the U.S,” said Oscar Parra, the principal of Pacific Retail Capital Partners’ Special Situations Group. “[It’s] like four times higher than any other nation … I don’t know of a market that needs a million square foot mall.”

Parra, whose firm is building housing at the site of a former Carson’s department store at a mall outside of Chicago, pointed to a similar project underway at Westfield’s Garden State Plaza in Paramus, New Jersey — one of the largest and most lucrative malls in the U.S.

“They have excess land, instead of using it for retail, they’re putting in apartments,” said Parra. “They didn’t see value in adding more retail to one of the most productive malls on the planet and that’s a signal.”

For mall owners, the numbers make sense. While top-tier malls continue to be in high demand, nearly 34 million square feet of U.S. mall space is vacant and off the market. Most Americans live within an hour of a mall with a high vacancy rate or low consumer traffic — or is abandoned altogether.

Add in the nationwide housing deficit of 4.5 million homes and it makes a trend that experts say is poised to continue. For developers, adding apartments can not only fill a need, but also bring people closer to their remaining retail stores and restaurants.

“Malls are an opportunity,” said Knudsen. “This is an opportunity to find land and have a built in customer base to get people into the mall.”

While living at the mall is a unique opportunity, it comes with challenges and hurdles. Construction costs are high, and developers need to navigate a maze of zoning laws and antiquated lease agreements to get projects off the ground because malls aren’t typically zoned for multifamily developments. Plus, the shape of a typical mall and department store almost always requires a complete teardown to bring in housing.

It might seem easy enough to transform an old Macy’s store into a few dozen apartments, but given the shape of the building, it’s difficult to do in a way that gives every apartment access to natural light and air.

“What we’ve learned is it’s better to disconnect it from the mall, not in every case, right? If you’re very dense urban retail, then you might want to integrate [apartments] into the property itself and we’ve seen some examples of that,” said Parra. “But mostly the idea is, tear the box down… scrape it, get rid of it, and then create a little bit of a buffer between the mall and the [apartment building].”

Scott Sheehan, a 31-year-old tax advisor and real estate investor, purchased an apartment inside the mall for $250,000 in October so he can rent it out on Airbnb. He chose the space because of its proximity to the train station, airport and nearby Brown University, along with major employers like big financial firms.

He estimates he can earn between $25,000 and $45,000 in revenue annually by renting the unit out to tourists. 

“At the end of the day, it’s a unique experience,” said Sheehan. “It’s a great alternative to a hotel room.”

The Grand Avenue Mall in Milwaukee, Wisconsin went through a similar renovation to add apartments that began in 2017. The once bustling shopping center in Milwaukee’s downtown was half empty by the end of the Great Recession and was later sold to developers, who began converting the space in the late 2010s. Dozens of apartments were opened up for rent in the last few years, and tenants now have access to amenities like a pickleball court, a “doggy wellness center” and a gym.

“We’re on the fourth floor. It used to be the YMCA. So where our apartment unit is was like the weight room of the YMCA and our hallway that goes around the whole building used to be the track,” said John Borchardt, 40, who moved into the former Grand Avenue Mall three years ago with his wife and dog Rodger. “It still kind of looks like a mall on the second floor.”

On that level, apartments were built inside of former storefronts. The units are unique but they also come with quirks. For example, they all have elaborate foyers with floor-to-ceiling windows, but those front rooms are also on full display to the public, which can create privacy concerns. Plus, some of the units don’t have windows because developers had to work with the storefront’s originally layout, said Borchardt.

He said his unit, which does have windows, is in a different part of the complex and doesn’t have the same architectural challenges.

Downstairs, he has access to a TJ Maxx and Foot Locker — the only remaining storefronts from the original mall — which he said is “super convenient” when he wants to take his dog shopping for new toys at the off-price store.

“He’s like a celebrity in the building. Everyone knows our dog. So it’s a very dog friendly space,” he said. “If it’s cold outside, or if it’s snowing or raining, we can walk the dog around, you know, like mall walkers back in the 90s or whatever, we can just walk around like five city blocks without ever going outside. It’s very cool.”

A Kohl’s recently moved in and renovations are underway at different parts of the complex, said Borchardt. Plus, there’s the new food court, which has more than a dozen restaurants and is a draw for tourists, locals and building residents alike. Borchardt said the “very busy” area boasts separate dining areas and a self-serve beer tap with rotating brews.

While the renovated food court is convenient, Bordchardt said easy access is also “a little bit of a problem” because of how easy it is to avoid cooking. 

“We can just order online, pick it up. There’s ice cream down there. So it’s just a little too easy to get takeout,” he said. “But it’s really convenient to have, like, if we were ever snowed in we can survive without ever leaving the building for quite a while.”

Najla Kayyem, Pacific Retail’s executive vice president of marketing, said the ease of access is kind of the point. 

“It’s really services and amenities based so creating convenience for our residents at every corner, so that they don’t have to leave, and so that they can get all of their daily needs done within that shopping experience,” said Kayyem.

While it could take years to get there, Kayyem said living at the mall could one day be similar to vacationing at a resort, where everything is charged to one account using a centralized system. 

“It’s tough when you have a mix of ownership groups, but ideally, you’re living somewhere and you have an account, and you can shop and dine and eat and buy things on your account,” said Kayyem. “That would be real, true, seamless integration to make it frictionless for someone to live there.”

— Additional reporting by DeLon Thornton and Shawn Baldwin