Developers are increasingly looking to shopping malls as a solution to the housing crisis.

• Real estate developers are replacing department stores in American malls with apartment buildings, resulting in more people living in these areas.
• As of January 2022, at least 192 U.S. malls planned to add housing to their footprint, with 33 having already constructed apartments since the pandemic began. Additionally, dozens of apartment projects are currently underway in California, Florida, Arizona, and Texas.
• The trend towards revitalizing shopping centers not only alleviates the housing shortage in the U.S., but also brings people closer to the remaining retail and restaurant spaces.

Say hello to life at the mall.

Real estate developers are replacing dying department stores in classic American malls with apartments, paving the way for a new norm where people can live at the mall.

Some U.S. developers are transforming department stores like Macy's and JCPenney into apartment buildings next to malls or connected via walkways and green spaces. In other cases, they've built apartments inside of shuttered storefronts and other shopping center properties or gutted them altogether to create a mix of housing, retail, restaurants, outdoor spaces, and experiences.

"Jacob Knudsen, the vice president of development for Macerich, stated that the FlatIron Crossing Mall in Broomfield, Colorado is becoming cool again. He added that being able to live, work, play, and dine near the mall is a trend."

The traditional anchor department store, which has been declining since 2001, is no longer the draw it once was, but consumers still enjoy shopping in person after the Covid pandemic.

Real estate developers are repurposing spaces left vacant by companies like JCPenney and Sears, which typically occupy at least half of a mall's footprint.

Apartment complexes are becoming the fastest-growing use of spaces previously occupied by big-box stores at American malls. As of January 2022, at least 192 U.S. malls planned to add housing to their footprint, and at least 33 had constructed apartments since the pandemic began, according to Realogic, a real estate consulting firm. At least a dozen more apartment projects are underway at malls across the country, including in California, Florida, Arizona, and Texas.

""The U.S has an excess of retail, with four times more retail than any other country. I am not aware of any market that requires a one million square foot mall," said Oscar Parra, the principal of Pacific Retail Capital Partners' Special Situations Group."

Parra, whose company is constructing housing on the site of a former Carson's department store at a mall outside of Chicago, mentioned a similar project happening at Westfield's Garden State Plaza in Paramus, New Jersey, one of the largest and most profitable malls in the U.S.

"Instead of using their excess land for retail, they're putting in apartments," said Parra. "Their failure to see value in adding more retail to one of the most productive malls on the planet is a signal."

Nearly 34 million square feet of U.S. mall space is vacant and off the market, with most Americans living within an hour of a mall with a high vacancy rate or low consumer traffic or is abandoned altogether.

Developers can meet the housing demand by adding apartments, which not only fills a need but also brings people closer to retail stores and restaurants.

"Knudsen stated that malls present an opportunity to acquire land and establish a customer base, which can attract more people to the mall."

Living at the mall presents a unique opportunity, but it also comes with challenges and obstacles. The high construction costs and complex zoning laws and lease agreements make it difficult for developers to get projects started. Additionally, the layout of a typical mall and department store often requires a complete demolition to accommodate housing.

Redesigning an old Macy's store into apartments presents a challenge due to the building's shape, as it is difficult to provide each apartment with natural light and ventilation.

"Parra stated that while disconnecting the mall from the property is not always the best option, it may be necessary in densely urban retail areas. In such cases, integrating apartments into the property itself can be beneficial. However, the general idea is to tear down the existing structure, scrape it, and create a buffer between the mall and the apartment building."

What's it like to live at the mall?

Not all apartments at U.S. malls are currently available. Several housing developments are still under construction and will begin renting in the near future, while others have just recently opened their doors.

In Indianapolis, the Lafayette Square Mall will begin operating 1,200 apartment units, including affordable housing, in a former Sears building in 2025. Meanwhile, the Paradise Valley Mall in Phoenix has recently opened 400 luxury units on November 15.

Although apartment development has increased recently, mall housing has been present for at least a decade. For example, The Arcade in Providence, Rhode Island, the oldest indoor shopping mall in the country, struggled after the Great Recession and was completely vacant by the end of the 2000s.

Instead of allowing the historic building to deteriorate, developers constructed 48 micro units on the second and third floors. Currently, numerous tenants reside there, and real estate investors have acquired additional units to rent on Airbnb.

"Being part of a historic building and knowing that each unit was once a shop is exciting," said Amy Henion, a 33-year-old graphic designer who has lived in The Arcade for two years. "Living in such a building offers amenities that you wouldn't have access to if you lived in a suburban home. For instance, if I need a haircut, I can simply walk downstairs. If I want to grab lunch, I don't even need to leave the building, even if the weather outside is bad."

In October, Scott Sheehan, a 31-year-old tax advisor and real estate investor, bought an apartment in the mall for $250,000 with the intention of renting it out. He selected the location due to its proximity to the train station, airport, and Brown University, as well as major employers such as big financial firms.

He predicts that he could make between $25,000 and $45,000 in yearly income from leasing the unit to tourists.

"In conclusion, it's a distinctive encounter," remarked Sheehan. "It serves as an excellent substitute for a hotel suite."

The Grand Avenue Mall in Milwaukee, Wisconsin underwent renovations to add apartments in 2017. By the end of the Great Recession, the once busy shopping center in downtown Milwaukee was half-empty and was later sold to developers. In the late 2010s, the space was converted, resulting in the opening of dozens of apartments for rent. Tenants now enjoy amenities such as a pickleball court, a "doggy wellness center," and a gym.

"John Borchardt, 40, who resides in the former Grand Avenue Mall for three years with his wife and dog Rodger, stated, "Our apartment unit on the fourth floor was previously the weight room of the YMCA, and our hallway that encircles the entire building was once the track. Although it still resembles a mall on the second floor, it's hard to imagine it as a YMCA.""

Apartments were constructed within former storefronts, resulting in unique units with quirks. For instance, all units feature elaborate foyers with floor-to-ceiling windows, but these front rooms are visible to the public, which may raise privacy concerns. Additionally, some units lack windows due to the original storefront layout, as explained by Borchardt.

His unit, although it has windows, is situated in a different section of the complex and presents distinct architectural difficulties.

He has access to two remaining storefronts from the original mall, which he finds "super convenient" for shopping for new dog toys at the off-price store.

"Our dog is well-known in the building, making it a very dog-friendly space. If it's cold or rainy outside, we can take the dog for a walk around the mall, like the popular mall walkers of the 90s, without ever leaving the building. It's a great way to stay active and enjoy the outdoors, even when the weather is bad."

Borchardt stated that the complex has recently undergone renovations at various locations, and the new food court with over a dozen restaurants is a popular attraction for tourists, locals, and residents. The area is bustling and features separate dining areas and a self-serve beer tap with rotating brews.

Bordchardt noted that while the renovated food court is convenient, easy access is also a problem because it's too easy to avoid cooking.

"We can easily order online and pick up our food. There's ice cream nearby. It's just too easy to get takeout," he said. "But it's really convenient to have, like, if we were ever snowed in, we could survive without ever leaving the building for quite a while."

The ease of access is the main point, according to Najla Kayyem, Pacific Retail's executive vice president of marketing.

Kayyem stated, "Our services and amenities are designed to provide convenience for our residents, allowing them to fulfill all their daily needs without having to leave the shopping experience."

Kayyem envisioned that, although it might take years to achieve, living at the mall could eventually be comparable to vacationing at a resort, with all expenses paid using a centralized system.

""Ideally, living in a place with a mix of ownership groups should be seamless, allowing you to shop, dine, eat, and buy things using your account," said Kayyem."

— Additional reporting by DeLon Thornton and Shawn Baldwin