Currently in DFW, there are 18 malls with a total square footage of 21.2 million feet, for an average of about 1.17 million square feet per property.
However, Barney McAuley, the new managing director at Edge Capital Markets, the investment services platform of Dallas-based Edge Realty Partners believes that post-COVID, we might have only three or four malls total in DFW.
Why would this be?
Well, logically you've heard about the decline of the mall in the Age of Amazon, so that's the primary reason and we won't belabor that a lot.
There are also concerns about spaces, however open, with lots of people jammed into them from a public health perspective. Remember: while a lot of DFW feels very "open" these days, we're not entirely out of the woods on COVID by any means.
Then you get into the finances and the demographics. If an area is not growing -- and thankfully a good chunk of DFW is growing -- then a mall or a redevelopment of a mall is highly unattractive. Some DFW cities are highly-interested in malls, per McAuley, but it's still a generally tough sell.
Commercial mortgage-backed securities (CMBS) have watchlists that flag properties which may be unable to pay back loans on time. Several DFW commercial properties, including malls, have been flagged since April. Mesquite's Town East Mall, which owes about $145 million, just got an extension to pay that back after being flagged on a CMBS watchlist.
Overall in the United States, across about 1,000 malls, there's $68 billion worth of CMBS debt outstanding.
Now, the good news is that some COVID-proof industries such as e-commerce or food production desperately do need large spaces: for every billion dollar increase in online sales, there’s a need for 2 million square feet of industrial space and the need for 1 million square feet less of retail space.
As McAuley notes:
The biggest challenge is that they won't be malls anymore. If you look at Dallas, there's going to be three, maybe four malls left when all the dust settles, so you’re selling a concept. That concept is a bit easier to sell here because we’re a business-friendly environment and municipalities, in my meetings with different cities, have been very flexible. If your community is not growing, it's very hard to redevelop a mall, but Dallas has been one of the fastest-growing cities during the last 10 years, so that creates a lot of opportunity to reimagine these malls.
There's been $208 billion raised for distressed real estate purchases. Some are really big funds. I've been speaking with some of these large funds that are focused on buying malls.
What about the role of Amazon in all this?
Good question. Amazon obviously grows like a weed and, whatever you think about Bezos' net worth, they became essential to many families during the pandemic. As a result, they need space -- especially since some people think this holiday season might be a "Ship-Ma-Geddon."
Amazon is looking at many malls. It’s hard for them to convert just one store. Other anchors won’t want an Amazon fulfillment center next door. It's more likely that Amazon or a development partner will try to purchase the whole mall. They've already done that in certain parts of the country.
Ideally, then, Amazon gets more space and you get stuff quicker. Cool.
What does this mean for you?
In terms of your day-to-day life, it probably doesn't mean much unless you work in commercial real estate. It could mean that you live next to an Amazon fulfillment center in the next five years or so, sure. It could (and will) influence property values in different areas of DFW as this plays out and we see what the focus of commercial is in the next few years.
In fact, another DFW real estate executive recently weighed in with an "eight-word summary of the DFW market," that being:
One caveat to that: multifamily has been very strong (yay), but there is a concern about overbuilding of units. There were some April/May concerns that DFW commercial real estate might fall off a cliff, but that's not likely to happen -- instead, commercial real estate will simply adapt.
It's interesting to watch and see, though -- but it's possible that in a few years, you'll have 13-14 less malls to consider running to for some errands.