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Creative Ways to Repurpose Abandoned Malls & Big-Box Stores After COVID-19

Getting Creative to Repurpose Abandoned Malls and Big-Box Stores

Many large retail spaces are sitting empty because of retailers going out of business, but there are novel strategies to reuse these spaces

Although the struggles of shopping malls and big-box stores aren’t new, as eCommerce has been cutting into their sales for years, the COVID-19 pandemic has been the final straw for many retailers.

Coresight Research estimates that 25% of the country’s 1,000 malls will close within three to five years, and as many as 25,000 stores could close in 2020 alone.

Malls are struggling after having their anchor stores go out of business without other retailers to pick up the slack. Even big-name brands like Men’s Wearhouse, J.C. Penney, and J. Crew have filed for bankruptcy since the beginning of the pandemic.

Simultaneously, discount chains like Target, Wal-Mart, and Home Depot are thriving, as they provide the necessities at lower prices than many other retailers can match.

But what if a retail property doesn’t have a Wal-Mart or Target to help keep it afloat?

Developers and owners have to repurpose the space for another use. And the good news is that there are some emerging options to consider once we’re through the current crisis.

The situation before COVID

Traditional retail stores closing isn’t a new trend. It’s harder for certain companies to survive in a brick-and-mortar environment when online retailers can offer more selection and an ultra-convenient shopping experience. Many online shops also have significantly less overhead, allowing them to reduce their prices.

These changes in shopping patterns have led to various big-box spaces and malls closing their doors. But developers are turning some of these spaces into completely different entities.

For example, the Under Armour headquarters in Baltimore, Maryland, sits on a 58-acre site once home to a Sam’s Club and several other businesses.

Other reused big-box store examples include:

  • A former Meijer store in Greenville, Michigan, is now the Rock City Indoor BMX track
  • A one-time Sam’s Club in Olathe, Kansas, has a new life as the Heartland Community Church
  • An Indianapolis Toys “R” Us became a charter school

There are various examples of malls coming back with a new purpose, too:

  • The Mayfield Mall in Mountain View, California, is currently one of Google’s headquarters
  • The Hickory Hollow Mall in Antioch, Tennessee, has become a skating rink
  • In Englewood, Colorado, the Cinderella City Mall now features residential units, retail shops, offices, and an art museum

There are numerous ways to repurpose former big-box stores and empty shopping malls, but the strategy might change a bit because of COVID-19.

The current landscape

We’re seeing less demand for corporate headquarters and other establishments that gather mass amounts of people because of the pandemic. With so much of the workforce currently operating remotely, there’s less need for larger office buildings. And some existing recreational facilities sit empty or at reduced capacity because people can’t be within six feet of each other.

So, what is the solution to these empty buildings?

It takes significant adaptation, but there are examples of commercial real estate owners repurposing empty malls, big-box stores, and other retail shops into indoor farms.

One such location is AeroFarms in Newark, New Jersey, which has indoor farms in buildings that were once steel mills, nightclubs, schools, and laser tag arenas. Today, AeroFarms operates the largest indoor vertical farm globally, producing food for people throughout the Newark area.

Another indoor farm, Wilder Fields, is currently under construction in a former Target store in Calumet City, Illinois. Once completed, it will have 24 separate rooms over its 135,000-square-foot space and produce enough crops to distribute to supermarkets and select restaurants in the area.

Medical marijuana is another crop that can thrive indoors, as is the case with a former JC Penney store at Copper Country Mall in Houghton, Michigan. The business plans to act as a dispensary that grows its products on-site in the abandoned store.

It’s also possible to turn these stores into fish farms, which are advantageous because their waste can feed other crops within the facility.

Central Detroit Christian Farm and Fishery took over a retail location from a food market and now operates an indoor fish farm featuring tilapia. The irrigation system pumps wastewater from the fish tanks to fertilize the on-site crops, creating an eco-friendly food source in a space otherwise sitting empty.

These examples of property owners reusing empty commercial buildings in creative ways provide hope for the post-pandemic world. The world is changing, but large spaces remain useful and can benefit society beyond their original purpose.

Modern solutions for modern problems

As we come out of the COVID-19 recession, some CRE sectors and buildings will fare worse than others—and various empty buildings won’t have enough tenants. Commercial real estate owners and developers will have to get creative if they wish to fill specific structures, especially as the virus’s course remains unclear.

If you’re struggling to decide on the next step for your retail property, Morris Southeast Group can help. We have our finger on the pulse of the commercial real estate environment and can assist as you adapt to the changing world.

Give us a call at 954.474.1776 for expert guidance. You can also reach Ken Morris directly by phone at 954.240.4400 or via email at kenmorris@morrissegroup.com.

Things To Consider When Leasing To A Medical Marijuana Dispensary

Medical marijuana

Some essential CRE steps when leasing to an essential business

At the height of lockdowns and quarantines, it quickly became apparent that what was considered essential expanded far beyond first responders and hospital staff. Truck drivers working long shifts to get goods to supermarkets, and the employees stocking shelves with those products quickly rose to the top.

Another business that quietly made the essential list was medical marijuana dispensaries. In many states where medical marijuana is legal, including Florida, the dispensaries were allowed to remain open through the shutdown. 

In fact, many dispensaries expanded their operations to get products to regular and new clients, many of whom were diagnosed with PTSD and anxiety linked to the stay-at-home orders, via delivery services and drive-thru windows.

Navigating the grey zone

Getting to that point, though, was no easy task, primarily because the cannabis business operates in a grey zone. Although some states have legalized medical marijuana, the substance remains a controlled one on the federal level—and how stringent the feds follow that law depends greatly on who happens to be inhabiting the White House and who is Attorney General. 

While there are indications in many regions around the country that the medical marijuana business is steering property values upward, there’s a fair share of risks and considerations for landlords looking to lease space to dispensaries and growers. 

For a CRE owner to get involved in the marijuana business, it’s imperative to make sure that all T’s are crossed, and I’s are dotted.

A key concern: if there’s a mortgage on the property

One of the first issues is if the owner is carrying a mortgage. If so, it’s imperative to review if there is a clause in the terms of the loan that stipulates that the borrower, the property, and its use will comply with “all applicable laws, rules, and regulations.”

Because there is a disparity between how marijuana is viewed at the federal and state levels, and because federal law technically preempts state law, many banks are less likely to allow a borrower to lease to any party involved in the marijuana business. The cannabis-related leasing deal may be dead before it is even on the table. 

Similarly, the property owner may have to seek alternative funding sources for the property as long as the lease with the marijuana business exists.

Additional considerations, with or without a mortgage

Even without a mortgage, there are some additional issues, outlined by the American Bar Association, that the landlord should consider:

  • How will rent be paid? Cash and federally-illegal substances raise eyebrows, and the property owner’s bank may become suspicious of how involved the owner is in the marijuana business. The consequence could be the bank terminating the relationship with the property owner.
  • How will the rent be computed? In traditional tenant leases, rents are either fixed or determined by a percentage. With marijuana-related businesses, though, a percentage-based rent may result in interpretations that the owner is involved in the sale of marijuana.
  • What are the local and state laws? Many jurisdictions have specific guidelines on dispensary licensure, zoning, and inspection rights.
  • What sort of lease works best? This all depends on the role the tenant is playing in the marijuana trade. For example, growing operations will have higher utility costs for water and electricity, and they also raise the risks of fire, electrical issues, and mold. In this case, a triple-net lease may be a better option than a gross lease.

Lease clauses to protect the landlord

If a property owner is interested in leasing to a marijuana-related business, there are a few clauses to consider within the lease terms. While many of these may seem obvious, putting them in writing indicates the owner has taken steps to ensure the lease is following the law and eliminating any grey areas or misinterpretations of the landlord’s position.

  • A specific permitted-use provision that spells out what the dispensary is allowed and not allowed to do. Very often, this can follow local and state laws.
  • A clause that explicitly stipulates the tenant will comply with all laws and guidelines.
  • An early termination rights provision so that the landlord can terminate the lease should the tenant violate the law, face criminal prosecution, or if the landlord receives nuisance complaints.
  • A clause that prohibits the tenant and their employees and clients from using marijuana on the premises.
  • An indemnity clause that requires the tenant to compensate the landlord for any costs stemming from damage to the building and common areas due to vandalism, burglaries, break-ins, etc.

Medical dispensaries in SoFlo

Although the road to legalized medical marijuana in Florida has been a long and rocky one, its presence is seen as a boom for the commercial real estate market. Still, there are key areas of concern that all parties must examine before entering any leasing agreement. The pros at Morris Southeast Group can help both landlords and tenants negotiate the legal twists and turns.
To learn more about what Morris Southeast Group can do for you now and in the future, call us at 954.474.1776. You can also reach Ken Morris directly at 954.240.4400 or via email at kenmorris@morrissegroup.com.

Can Proposed Seawalls Protect Miami From Storm Surges?

Seawalls on Downtown Miami

The Magic City could see walls become a permanent part of the downtown area if an Army Corps of Engineers plan comes to fruition

Downtown Miami has one of the planet’s most spectacular coastlines, featuring buildings that seemingly jet from the ocean as you approach from the air or water. 

This beautiful location comes with challenges, however. Namely, the impacts of climate change, which may be causing more frequent and severe hurricanes and leading to rising sea levels, are paramount.

The U.S. Army Corps of Engineers has a $4.6 billion plan to build a 10 to 13-foot-high wall along Biscayne Boulevard to reduce storm damage. In theory, these walls could save the city about $2 billion in damage every year—but there’s more to the discussion than protecting the city.

Would they work?

In short, yes, walls could be an effective way of reducing storm damage in downtown Miami. However, there is some dispute over where the Army should build the walls and whether some neighborhoods would still find themselves underwater.

The current plan calls for constructing moveable storm surge barriers on the Biscayne Canal, Little River, Miami River, and in the Edgewater neighborhood. These barriers would have gates that close as a hurricane approaches, preventing surges from overflowing the rivers and flooding low-lying communities.

The walls would extend north and south of these barriers, providing even more protection for the surrounding neighborhoods. Some buildings would remain outside of the walls, though, leaving them in a tough spot during an incoming storm.

It’s also worth noting that these measures wouldn’t protect the city from rising sea levels. That’s because Miami is built on porous rocks that would let water seep through, even with the walls in place.

To address rising sea-level concerns, Miami intends to elevate roughly 10,000 properties and flood-proof 7,000 more. While this is a good start, that investment would still leave thousands of buildings exposed.

Investors and developers will want to keep a steady eye on this situation. If this proposal ends up going ahead, properties with wall protection will likely retain more value than the buildings that sit outside the walls and remain exposed to storm surges.

Problems with the walls

Property owners around Miami aren’t unanimously in favor of the wall-building strategy because of how it would change the Magic City.

First, there are the aesthetics of the change. Ten-foot walls in the downtown area would eliminate ocean views for some buildings, potentially hurting their value. And from a functional standpoint, the walls would cut off boat traffic from sections of downtown Miami and could make the Baywalk obsolete. 

These factors are definitely worth considering, of course. But if Miami ends up underwater, the issues will be moot.

Once the official proposal is released, investors will have the opportunity to see the re-imagined downtown Miami, which will provide a clearer view of what the future holds.

Alternative options

For that reason, the Downtown Development Authority is asking Miami-Dade to consider nature-based solutions to the storm surge problem, such as restoring nearshore coral reef, building artificial islands, and growing more living shorelines. 

Environmental groups, including the Everglades Coalition and Miami Waterkeeper, have seconded that idea. And other groups would like to see the Army Corps of Engineers include flood protection in more impoverished neighborhoods, rather than focusing exclusively on downtown. 

There’s still a lot to be decided on this project, as the Army will work with Miami-Dade to develop a locally preferred plan. From there, the project is brought before Congress before funding is approved.

Much work remains on potential protections for the Miami shoreline. But it’s only a matter of time before we get something to stop the influx of storm surges in the downtown area.

Figuring out the solution

Morris Southeast Group knows that climate change affects not only the environment but also creates significant economic issues for Miami and other coastal areas in South Florida. 

Developers need to know that their investments are safe and that they’ll provide value moving forward, which becomes challenging when hurricanes and flooding are a persistent worry. Simultaneously, a massive wall along the coast could take away from Miami’s beauty, walkability, and appeal.

Coming up with a solution that’s effective and balances the concerns of various stakeholders will be vital. 

For information on potential CRE impacts, or to learn about Morris Southeast Group’s commercial real estate investment or property management services, give us a call at 954.474.1776. You can also reach Ken Morris directly by phone at 954.240.4400 or through email at kenmorris@morrissegroup.com.

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