Transforming Shopping Malls Into 21st Century Neighborhoods

The death of the 20th century shopping mall is evident all across the country, and the data bears out this assertion.

Coresight Research estimates that 25% of the nation’s roughly 1,000 existing malls will close over the next three to five years, with the pandemic accelerating a demise that was already underway.

Inherent in the collapse of this antiquated shopping mall typology is a massive opportunity to redefine the paradigm of how we create sustainable and equitable suburban environments to live, work, learn, and yes, shop. As we reimagine sites of this scale, taking the right steps is essential: identify the opportunity, implement the catalyst, lead with a long-term framework and a shared vision, and look to the future.

The Opportunity

In the San Francisco Bay Area, according to the “Mall and Office Transformation Guide” by Perkins&Will for the Association of Bay Area Governments (ABAG), malls and business parks account for more than 9,000 acres of underutilized property across the region. With the State of California encouraging housing development in commercial zones, these projects are prime opportunities for alleviating the housing crisis. Many of these declining malls are ideal redevelopment sites—on average 20-60 acres, covered in surface parking lots, and located in priority development areas with good access to transit.

On the other hand, these sites can be overwhelming for local jurisdictions, who have never engaged in this type or scale of project; and for developers, as buying a mall is not a typical real estate transaction.  Rarely are mall properties owned by a singular entity and they come with handfuls of long-term lease agreements with retailers. A significant number of these old sites face environmental challenges.

Mall transformations across the country that are well on their way to their next life and purpose, bring up important questions: What is the right long-term development framework to ensure the optimal mix and intensity of uses and significant public benefit, and what is the catalyst that will springboard an underutilized site into a thriving new neighborhood?

The Catalyst

So where do you begin? Do you choose adaptive re-use, infusing new life into existing big-box structures, or choose new development? Both are viable, but contingent upon market realities and the desired land use. Housing development to address the national deficit is one worthy starting point. Still, catalysts can also be public institutions such as community college facilities or hospitals and healthcare facilities to support greater social infrastructure.

The University of Rochester Medical Center opened its outpatient campus in an empty Sears department store—infusing new life into the abandoned structure. (Rendering Credit: Perkins&Will)

New healthcare facilities are critical infrastructure for anchoring a new resilient neighborhood, especially when it brings those services into previously underserved regions. The University of Rochester Medical Center opened its outpatient campus Orthopedics and Physical Performance Center in an empty Sears big box department store. Once complete, it will be one of the largest outpatient orthopedic facilities in the Northeast.

The design team brought daylight into the existing footprint through a series of skylights. An internal courtyard also functions as a rehabilitation space. (Rendering Credit: Perkins&Will)

Similarly, the University of Texas Southwestern Medical Center at RedBird in Southern Dallas is also a renovation of a former Sears big box in an underserved community. RedBird is now UT Southwestern’s largest outpatient location beyond their main campus.

The Long-Term Development Framework

A catalytic anchor needs to be complemented by a long-term development framework to ensure phased, sustainable growth and investment. A public-private partnership between Austin Community College and Red Leaf Properties led to the redevelopment of the 81-acre former Highland Mall near a working-class and immigrant neighborhood in Austin, Texas into Highland ATX, an innovative learning center and new mixed-income, transit-oriented community.

Austin Community College (ACC) was attracted by the big box structures and acquired the properties in 2010 to repurpose the spaces as a centralized location for their specialty programs, filling a need for state-of-the-art training for the region’s most in-demand jobs.

While ACC was able to infuse new life into the abandoned big box structures for their new campus, Red Leaf Properties was interested in converting the vast empty surface parking lots into mixed-use development. Red Leaf sought input from the surrounding neighborhoods and student community on the types of shops, services and amenities that would be included in the new mixed-use development surrounding the campus. Today the area boasts 1200 new residential units, new transit service, shops and services for everyday life, a 1.25 mile trail and three new parks.

The development framework balances an emphasis on community benefit with the necessary flexibility that developers need in the market. This framework sets the community’s vision, establishes the right mix of land uses, and makes sure the project delivers the right community amenities such as a multi-modal transportation network and an inclusive, experience-rich public realm.

Leading With A Shared Vision

Partnerships, like the one between ACC and Red Leaf Properties, are essential to carrying out a vision for these large and complex projects. What otherwise may have ended up as a bidding war, ultimately became a productive collaboration and serves as a national model for economic development. However, it’s critical to expand these formal partnerships to a wide and diverse cross-section of the community, with a priority to engage community members that have historically been left out and disproportionately impacted by racism, disinvestment, and displacement. With an emphasis on creating an equitable engagement process and development, project representatives can enlist a variety of community leaders who can draw input from, and speak on behalf of, the groups they represent and ensure that these communities are ultimately recipients of this new investment and opportunity.

The Future of Shopping Malls

Shopping malls were once the quintessential suburban community anchor. Now these sites represent an opportunity to re-define post-pandemic suburban environments and re-engage with where the majority of Americans actually live (and likely will continue to live). The future of the suburban fabric can become a more holistic environment that addresses the IPCC’s climate sustainability goals, provides greater access to affordable housing, healthcare, and workforce development, and fosters more close-knit, resilient communities.

 

Source: Building Design + Construction

When Will Medical Office Building Sales Bounce Back?

On the surface, the current state of the medical office building (MOB) investment market is about as slow as it’s been for years, maybe decades.

However, as is typically the case with a complex, robust industry like HRE, there is much more going on than meets the eye.

The InterFace Healthcare Real Estate conference investment panel included (from left to right): John Fry, SVP- Acquisitions, Rendina Healthcare Real Estate; Ryan Crowley, SVP, Investments, Healthcare Realty; Alex Bell, Partner, Catalyst Healthcare Real Estate; Eric Lee, Managing Director Medical & Life Sciences, Berkadia Real Estate Advisors LLC; Chris Morgan, Senior Manager, Investments, Big Sky Medical; and the moderator, Andy Dow, Shareholder, Member of Board of Directors and Chair, Real Estate Industry Group, of Winstead PC. (PHOTO CREDIT: HREI)

“The first half of the year volume was down … anywhere from 66 to 71 percent versus the first half of 2022,” said Andy Dow, an attorney with a focus on healthcare real estate (HRE) and the chair of the Real Estate Industry Group with Dallas-based Winstead PC. “The (second quarter) volume was roughly $1.2 billion, which was the lowest quarterly volume ever recorded by RevistaMed (an HRE data and research firm) since it was founded in 2015.”

So when will it bounce back?  Probably not before the elections of 2024, according to the InterFace Healthcare Real Estate panel.

 

Source: HREI

Healthcare Mergers: Expecting More In 2024

Even with some high-profile hospital deals taking place in the first half of the year, merger activity across the broader healthcare industry has slowed a bit.

And KPMG is projecting that healthcare mergers and acquisition activity may be a bit more subdued for the remainder of the year. In the first half of 2023, there were 245 healthcare mergers, a 7% drop from the first six months of 2022, according to a report from KPMG.

“The pace of healthcare deals may not pick up more steam until 2024,” says Ross Nelson, KPMG’s national healthcare strategy leader for the provider and payer sectors. “We do think it’s going to pick up soon. I don’t know the exact date, but we’re hopeful that calendar year ’24 is certainly going to be more robust than the calendar year ’23.”

There have been some big healthcare transactions taking place in the beginning of the year, including CVS buying Oak Street Health in a $10.6 billion deal. UnitedHealth is purchasing Amedisys, the home health and hospice provider, in a $3.3 billion transaction. TPG and AmerisourceBergen completed a $2.1 billion deal to acquire OneOncology, a network of cancer practices.

Hospital merger activity is on the rise, and some analysts expect that to continue. In a deal that gained widespread attention, Kaiser Permanente agreed to acquire Geisinger Health, the Pennsylvania system. BJC HealthCare of St. Louis and Saint Luke’s Health System of Kansas City announced May 31 that they plan to merge and form an integrated academic health system. Aspirus Health, a Wisconsin-based system, and St. Luke’s of Duluth, Minn., said in July they plan to come together.

Headwinds And Tailwinds

Even with some big deals that have been announced, Nelson says a number of factors have slowed down some merger activity in the broader healthcare industry.

“The headwinds include higher interest rates, and if the Federal Reserve continues to raise interest rates, some organizations could wait before pursuing M&A plans,” Nelson says.

The Federal Reserve has raised its benchmark interest rate 11 times in the last 17 months, and it’s unclear if other hikes are coming, the Associated Press reports.

“If the nation moves into a recession, then that would likely cool healthcare merger activity,” Nelson says. “Some organizations are paying closer attention to heightened scrutiny from regulators, Nelson says. In some cases, the Federal Trade Commission has been vocal in opposing mergers and acquisitions involving health systems in the same market, drawing criticism from some in the hospital industry.”

Some hospitals have explored mergers with systems in other states to skirt regulatory concerns about the consolidation of providers in the same market.  UnityPoint Health and Presbyterian Healthcare Services said in March that they are exploring a merger, potentially creating an organization with more than 40 hospitals. UnityPoint operates hospitals in Iowa, Illinois and Wisconsin, while Presbyterian serves New Mexico.

“I think folks are looking at deals in other markets because they feel like often, the deals within their markets are having a tough time getting done,” Nelson says. “Even with deals involving organizations in different markets, regulators are taking a closer look.”

Nelson expects to see more hospitals teaming with other health systems or other partners on certain service lines to keep patients in their network.

“With hospitals that have assets that may not be as profitable as they should be, they may look for partners that might unlock revenue or cost synergies and they can share in the cumulative or combined bottom line,” Nelson says.

KPMG expects some of the economic pressures on merger activity to ease, leading to some increased deal-making.

“There is a lot of money on the sidelines that needs to be deployed,” Nelson says.

Some health systems could be looking at selling some hospitals in markets where they don’t have a commanding presence. Steward Health Care agreed to sell five hospitals in Utah to CommonSpirit Health earlier this year. In June, Ascension agreed to transfer Our Lady of Lourdes Memorial Hospital in Binghamton, N.Y., along with its physician practices, to the Guthrie Clinic of Sayre, Pa.

‘Unlock Value Creation’

As more care shifts outside the hospital, organizations could be looking to acquire more outpatient and ambulatory surgical centers. Investors could find opportunities in markets where the bulk of services are still being done inside the hospital, KPMG projects.

“Healthcare organizations considering mergers and acquisitions should think strategically,” Nelson says. “I think they should be continuously giving their portfolio a review of what’s kind of a core and non-core asset, or a performing or non-performing asset, within the existing portfolio.”

Organizations should stay disciplined about the thesis of their deals and valuations.

“You’ll get your chance to buy the right asset at the right price,” Nelson says. “For those that are buying assets, I would constantly look at how to unlock value creation or continue  do integration activities to unlock as much synergies and value as possible.”

Anu Singh, managing director and leader of partnerships, mergers and acquisitions at Kaufman Hall, told Chief Healthcare Executive in July that he expects to see more hospitals making deals in the months ahead.

“There are organizations that are looking for complementary resources and capabilities …  there are ones in the middle who have maybe some increased concerns about their long-term viability of remaining independent,” Singh said.

 

Source: Chief Healthcare Executive