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ALABAMA MALL RAZED TO MAKE WAY FOR NEW CENTER

By Debra Hazel

The three-anchor Parkway City Mall in Huntsville, Ala., is being torn down and will be replaced by a new two-anchor center more in tune with the market.

While unproductive regional malls are regularly converted to new formats, it is rarer to see them torn down and replaced by new malls. Yet that is exactly what’s happening at Parkway City Mall in Huntsville, Ala.

This past spring, co-developers CBL & Associates Properties and Colonial Properties shuttered all of the remaining small shops at the mall to make way for the wrecking ball. By fall 2002, the 550,000-square-foot, three-anchor center will be replaced by a 600,000-square-foot, two-anchor mall more in tune with a changing Huntsville.

The two companies have torn down centers and redeveloped them into new formats in the past, but the replacement of one mall with a new one is a first for both Chattanooga, Tenn.-based CBL and Birmingham, Ala.-based Colonial. Yet the decision to tear down the existing Parkway and rebuild it was not as difficult as it might seem, despite the loss of some income during the 18-month destruction and construction period.

Retrofitting the 30-year-old center was impractical because of the need for larger anchors, said Michael Lebovitz, senior vice president of mall projects at CBL. But the site remained an ideal location for a mall.

"Fundamentally, it’s excellent real estate," Lebovitz said of the 33-acre property located at Memorial Parkway and Drake Avenue.

While anchor Parisian’s sales remained strong, the old mall hadn’t kept up with its market’s changing needs.

"A 30- or 40-year-old property is obsolete," said John N. Hughey, executive vice president of the retail division for Colonial.

CBL was familiar with the project; the firm’s predecessor company, Arlen Shopping Centers, New York City, managed Parkway City back in the 1970s when it was a strip center, converting it to a regional mall in the middle of that decade. Later, other companies took over the management of the project, but, in 1998, CBL had an opportunity to revisit Parkway. Both CBL and Colonial were looking to build new malls in the market, and Urban Shopping Centers, which then managed Parkway, had studied renovating the center for the owner.

"It’s interesting. We both were pursuing the property, and had the same vision. Rather than fight over it, we joined forces," Hughey said. "We were able to buy it outright, basically for the price of the land," about $7 million. Parkway is the first joint venture for the two REITs. (A third unnamed minority partner also is involved in the deal financially.) CBL is handling the development, while Colonial is working on the leasing.

The two firms immediately began plans for the conversion, helped in no small part by Urban’s management, gradually allowing leases to expire to empty out the center. By the time the official shutdown took place on April 30, fewer than half the small shops were open — although the anchors have remained open — and demolition began in late May. The new mall, which will open Oct. 16, 2002, will feature two levels of retail between the anchors, with some 85 retailers, including an upper-level food court. A new 167,000-square-foot Parisian unit will open next month, next to a new Picadilly Cafeteria that at press time was to open late last month. These are the only two stores that will remain open. The existing Parisian and McRae’s are continuing to operate until the new Parisian opens; Montgomery Ward, the third anchor, was already shuttered following the retailers’ bankruptcy. Dillard’s, the new second anchor, will open with the new mall.

Small-shop leasing has just begun, Hughey reported, and Colonial is targeting higher-end stores than had previously been in the center to cater to the market’s increased wealth; Huntsville has become a high-tech haven due to the opening of the NASA’s Marshall Space Flight Center and other technology firms. "It’s a true high-tech place, almost an island of brainpower in the Southeast," Lebovitz said.

There are 652,000 people in the market, with a median household income of $72,498, Hughey said.

"This is a very dominant property on the high-income side of town; it’s where a lot of the old money lives," Hughey said. Demolishing and rebuilding a mall is a costly proposition, at least initially. Not only is a teardown/rebuild more expensive than a renovation, it also means the loss of nearly all income from the property throughout the construction process. Yet Wall Street and local governments usually applaud the move. Odds are the asset is not all that productive, resulting in a relatively insignificant impact on funds from operations and tax revenues. "It’s been built into our numbers. So while there will be a decrease in our financials, it’s planned," Lebovitz said.

If building new malls on the sites of old ones is a rarity, analysts are at least accustomed to the demolition of shopping center space.

"We’re tearing down a lot more mall space than we’re building," said David Fick, REIT analyst for Baltimore-based Legg Mason Wood Walker, which tracks CBL and Colonial.

The Baltimore market, he noted, saw the construction of 27 enclosed malls, but far fewer exist today; the rest were torn down and redeveloped into other retail formats such as power centers.

"Essentially, we’ve experimented with retail over the last 50 years, and found that people like malls, but like them to be dominant. Second-tier malls are going the way of the dinosaur, and that’s an appropriate thing," Fick said.

Parkway City’s customers are supportive, the developers say, knowing that they will have a mall more in tune with their needs.

"With this, we will get Parisian’s absolute best presentation, and Dillard’s best presentation," Hughey said.

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