Fitch Ratings Opinion Explores Possible Alternate Use For Distressed Malls; New Use For Elk Grove's 'Ghost Mall'

June 6, 2017 |  

Even though prospects for ever opening Howard Hughes Corporation's long moribund Outlet Collection at Elk Grove seems to diminish with each passing day, perhaps there is another use for Elk Grove's aptly named Ghost Mall.

In a research opinion released on Tuesday, May 30, Fitch Ratings offers a practical use for the unfinished mall that would be familiar to mass transit riders - completing the last mile.

Noting the numerous distressed malls,the weakness of traditional brick and mortar retailers, and the growing importance of online retailing, Fitch suggests using the malls as distribution points for online sales. 

Fitch says:

"Retail real estate sites and e-commerce last mile distribution sites now essentially serve the same purpose - the distribution (or staging) of goods for sale to the end user. One has a delivery focus but without public access, the other has public access but without a delivery function. Retail centers that exhibit the best demographics, which include per capita income and population density, will be most easily repositioned and most capable of managing the secular shift in how goods are sold and purchased in the 21st century.
Owners of infill retail locations that can also function as delivery and pickup locations - retail distribution (or ReDi Facilities) - will likely be winners as this convergence accelerates. The need to distinguish between an attractive retail or last mile distribution site - zoning notwithstanding - will become less meaningful as the function of the real estate is the same: providing a way to distribute goods to customers. The old real estate axiom, "Location, Location, Location" applies, possibly now more than ever."

Put another way, distressed malls, and in the case of the unfinished Outlet Collection at Elk Grove, could become the last mile in the long distribution chain of getting goods from production into the hands of consumers.

The key, Fitch says is having the proper demographics, in which they include having per capita income and population density nearby. Although Elk Grove may not have the exact income levels wanted for a high-end retailers, the lack of nearby population density might be the bigger stumbling block.

Another stumbling block might be the hesitancy of city officials rezoning a distressed shopping mall. However, as Fitch notes:

"If the alternative is an antiquated or failing center in a municipality, zoning authorities and their communities will eventually be compelled to consider zoning changes allowing small scale distribution facilities at current retail zoned sites or face the prospects of a blighted center, lost jobs and tax revenue. Fitch expects real estate owners will find ways to make mixed-use retail/ distribution sites palatable for residents."  

While the repurposing of Elk Grove's already reduced in size Ghost Mall to a combination mixed-use retail distribution center is probably not palatable for the Elk Grove City Council, the Wilton Rancheria's and Boyd Gaming's casino resort, or HHC, can they come up with an idea more suitable to the changing retail environment? Furthermore, there are signs that the Wilton Rancheria's casino proposal, which was supposed to jump start the Outlet Collection, is getting gummed up in the federal bureaucracy, which ironically could create more uncertainty for the site and thus scare off possible tenants.

The most recent scheme hatched two years ago to convert the former Elk Grove Promenade to the Outlet Collection along with the addition of the casino project has not exactly lit the retail world on fire has it?

The Fitch report can be read here.