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Life After Mervyns

Twin Cities malls find there’s more than one way to fill an empty anchor space

By Dees Stribling

In a time of consolidation and dissolution for department stores, the fates of nine former Mervyns in the Minneapolis-St. Paul area provide a microcosm of what is happening to mall anchors across the country: Many are being repositioned, almost beyond recognition from their former use, others are being absorbed by the strong department store chains that remain, and a few still hang in limbo.

Last year when Federated Department Stores bought May Department Stores Co., Federated wanted May’s premier brands, especially Marshall Field’s — but not Mervyns. The nine Mervyns in Minneapolis-St. Paul went on the block last summer.

“Only its former employees really miss Mervyns in this market,” said James C. McComb, president of McComb Group, a Twin Cities retail consulting firm. “Mervyns might make better sense in California, but the concept never really had much traction here, so it was perfectly logical that May wanted to dispose of the properties as quickly as possible, and for the most part, that’s happened.”

Getting rid of them is good for the market, agrees John Johannson, senior vice president of retail leasing at the Welsh Cos., which was not involved in the dispositions. “None of the sites has traded for substantially above market,” Johannson said, “and the fact that they were on the market represents a lot of new opportunities to replace stores that weren’t performing well.”

The most radical transformation so far has been at the Rosedale Shopping Center, in suburban Roseville, north of downtown. “In years past, there would be a department store lined up to replace Mervyns,” said Rollin Hunsicker, a Twin Cities-based vice president of Jones Lang LaSalle and the center’s general manager. “We did the feasibility studies for the owner, and that option was very limited.”

The owner, Morgan Stanley’s Prime Property Fund, exercised a right of first refusal, acquiring the property for $9.5 million. It then decided to invest roughly $40 million to demolish the 170,000-square-foot site and replace it with 180,000 square feet of new retail that will include 120,000 square feet “in a more lifestyle format,” says Hunsicker. The rest will contain a multiscreen movie theater.

“We considered reconfiguring it into multitenant space, but that would have been quite difficult, mainly for structural reasons,” Hunsicker said. The store’s internal column arrangement would deter some uses, and perhaps more important, it had a third floor with no mall access, something no retailer would want, he says. The structure’s three stories will become two, with outward-facing retail, probably restaurants, on the first floor. All of these are major elements of lifestyle retail. Demolition began this summer, and the building is scheduled for completion by next year’s holiday season. At press time an AMC movie theater and a Granite City Brewery restaurant had signed on.

Other transformations are not as far along. In the southwest suburban Eden Prairie (Minn.) Mall, owner General Growth Properties “went to May immediately, because we wanted that store back,” said Robert A. Michaels, president and COO of General Growth. “We thought we could do a lot more with that real estate. We initiated the deal and made it quick.”

General Growth paid $5.5 million for the 130,000-square-foot store, in a deal that closed last December, according to public records.

At press time plans for the Eden Prairie Mervyns were still undetermined, but one level could be set apart for entertainment and the other for big-box use, Michaels says. “We’re also considering teardown and rebuild, but it’s more likely the building will be retrofitted,” Michaels said. “We’ll decide shortly. Several major retailers are interested.”

Columbus, Ohio-based Glimcher Realty Trust, which owns Northtown Mall in the far north suburb of Blaine, Minn., decided to include the Mervyns site, which it already owned, in its full renovation of the mall. The Mervyns closure was one of a string of headaches for the company involving the mall. In 2001 its Montgomery Ward closed when that company folded, and in the summer of 2004, shortly after the Mervyns closure, Kohl’s jumped ship to a nearby property. Word at press time was that a Home Depot would take the old Ward space; a Burlington Coat Factory, meanwhile, had decided to take over the former Kohl’s spot.

It would be difficult to find one tenant, such as a department store, for the site, says Paula Mueller, general manager of Northtown, echoing other owners who face that dilemma. The location will probably be divided into a couple of outward-facing, 60,000-square-foot spaces, she says, though no plans have been finalized.

Another lifestyle conversion may be in store for the Mervyns in Southdale Center, in southwest suburban Edina. Blackstone Realty bought the property after May put it on the market. But Blackstone subsequently sold it, along with the rest of Southdale Mall and Southridge Mall, Wisconsin, to The Mills Corp. for $452 million.

Mills declined to comment on its plans for the former Mervyns, but considering Mills’ track record, it is a reasonable bet that the store will be razed or reconfigured to be a lifestyle mall element in some way.

Chattanooga, Tenn.-based CBL & Associates Properties is dividing the Mervyns at Burnsville (Minn.) Center into two big boxes, one per floor. The lower 62,500 square feet will become a Steve & Barry’s University Sports clothing store (the concept is often compared to Old Navy), and the 50,000-square-foot upper level will convert to a Dick’s Sporting Goods. A further 15,000 square feet on that second level is to be set aside for specialty retail.

“In redeveloping the site, the main consideration is to increase the attractiveness of the mall,” said Deborah Gibb, CBL’s director of corporate communications. “Two worthwhile tenants were the best way to do that, especially since finding one for the space would be so difficult. From the tenants’ perspective, they’re getting the demographics they want without too much move-in hassle.”

According to a CBL financial filing, the cost of the purchase and rehab of the Mervyns space at Burnsville is $24.6 million. The project is under way now, with Steve & Barry’s slated to open in the fall and Dick’s sometime next year.

Department stores are not completely out of the picture, however. Shortly after the Mervyns units at Maplewood Mall and Tamarack Village, both in the eastern Twin Cities area, went on the block, J.C. Penney Corp. acquired them. According to Washington County, Minn., records, the Tamarack Village site sold for $5.6 million. No figure was available for the Maplewood site. Both JCPenney stores opened this spring.

“Both were located in areas with a concentration of our customers, which gave the company an incentive to buy quickly,” said Quinton Crenshaw, a spokesman for J.C. Penney. “Both of them were also convenient because of their layout, and so the company was able to convert the space to our newer format, which includes wider aisles, checkouts near the main entrance, the addition of salons and a pick-up desk for Internet purchases.”

Two of Mervyns’ sites remain unsold. One is at the Midway Marketplace, in St. Paul. Macquarie/DDR Trust, a joint venture of Sydney, Australia-based Macquarie Bank and Columbus, Ohio-based Developers Diversified Realty Corp., owns the mall but not the Mervyns site.

“So far, there seems to be a lot of retail interest in it, but it hasn’t sold yet,” said Lori Fritts, president of the Midway Chamber of Commerce, in St. Paul. “A good use for the site might be a home improvement or electronics store, but right now it’s empty.”

The other orphan, at the Brookdale Shopping Center, in Brooklyn Center, northwest of Minneapolis, may face bleaker prospects. Brookdale has lost a number of tenants besides Mervyns — JCPenney also closed in 2004, and this year the mall lost its Gap and Old Navy stores. Washington, D.C.-based Madison Marquette is the property’s court-appointed receiver, following the failure of the mall’s owner, the Coral Gables, Fla.-based Talisman Cos., to pay nearly $2 million in property taxes.

“That mall has struggled since roughly 1990,” said McComb. “I don’t think anyone’s going to be serious about buying the Mervyns site until the future of the entire property is clearer.”

Perhaps so, but a look at the Twin Cities area overall might offer a clear enough picture of what is happening to vacant department store spaces across the U.S.

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