Would you live in a mall?

07 May 2021
Tim anderson boehm

This Chicago developer is betting more than 600 people will say yes.

By: Alby Gallun, Crain's Chicago Business

Tim Anderson is on a quest to urbanize a quintessentially suburban fixture: the shopping mall.

The Chicago developer is building more than 600 apartments in two properties, Hawthorn Mall in Vernon Hills and Fox Valley Mall in Aurora, part of a bold experiment to reposition the malls and ensure their survival during the Amazon era. By adding housing to the mix, the redevelopments could bring some urban verve to malls sapped of energy as department stores and other retailers have shut down.

Anderson's firm, Focus, and the owner of the malls, Dallas-based Centennial Real Estate, aim to replicate the symbiosis that exists in cities and in some suburban downtowns. They're betting the apartments will support retail and restaurants, and vice versa.

At Hawthorn, on the site of a former Sears store, they're creating an integrated package with 311 apartments above 52,000 square feet of ground-floor retail space opening out onto new sidewalks and streets. Focus isn't just plopping an apartment building down on a nearby parking lot.

If it works, the apartments will attract both suburban empty nesters and aging millennials who want to leave the city—but maybe not completely.

"They want to go to something they could go to in Fulton Market," says Anderson, founder and CEO of Chicago-based Focus. "That's what we're trying to do."

Lumen at Fox Valley

The two projects represent another step in the evolution of Tim Anderson, who has found a sweet spot in developments that combine apartments with lots of retail space. A former architect—and self-proclaimed Ludwig Mies van der Rohe fan—Anderson moved into residential development in the 1980s, struggled through the condo crash and then pivoted into apartments when the multifamily market took off after the Great Recession.

Focus, founded by Anderson in 1993, has developed buildings both short and tall in places that include Wheaton, the West Loop, the Illinois Medical District, Evanston and Lake Forest. But Anderson lately has been digging deeper into suburban mixed-use developments, knowing apartment tenants will pay premium rents if they have restaurants and a good grocery store nearby.

Investors will pay up, too. In 2015, a joint venture between Focus and its longtime partner, Atlanta-based Atlantic Realty Partners, completed the Reserve at Glenview, a 239-unit apartment development next to a shopping center anchored by a Mariano's supermarket. The venture sold the apartments for about $81 million two years later.

Around the same time, Focus and Atlantic Realty began construction on a 260-unit apartment development connected to the 270,000-square-foot Mellody Farm shopping center in Vernon Hills, across the street from Hawthorn Mall. They sold the development, called Atworth at Mellody Farm, for $89 million in late 2019.

The Atworth apartments rented up in just 10 months, much faster than projected, Anderson says. He attributed the "unusual record-setting pace" mainly to the shopping center right out the front door. Retail tenants include REI, Athleta, the Dailey Method and about a dozen restaurants.

The Atworth isn't next to a Metra station, a convenience important to some commuters, but it's near something in the shopping center that Anderson considers even more valuable: a Whole Foods Market. A recent study found that apartment buildings with a ground-floor Whole Foods achieve a 5.8 percent rent premium over comparable buildings nearby.

"I'd bet more on Whole Foods than I would a train station," Anderson says.

Focus' success with the Atworth impressed Centennial's executives as the landlord was drafting up its $250 million redevelopment plan for Hawthorn Mall. Focus "was on the extremely short list" of apartment developers Centennial considered in its search for a partner to handle the multifamily chores, says Jon Meshel, senior vice president of development at Centennial.

"They had that product dialed in really well," he says.

Hawthorn Row

Centennial is hoping for a repeat performance at Hawthorn Mall, a 1.3 million-square-foot property at Townline Road and Milwaukee Avenue. So are the village of Vernon Hills and other local taxing bodies that rely on the mall for sales and property tax revenue. The village last month approved $46.5 million in incentives for the redevelopment, which Centennial calls Hawthorn 2.0.

Crews demolished the Sears store in January, and site preparation and infrastructure work are underway. Focus expects to begin construction next month and complete the apartments by fall 2022, Anderson says.

Focus also plans to begin construction of 304 apartments at the Fox Valley Mall next month. Unlike the Hawthorn project, the apartments at Fox Valley, also on the site of a former Sears store, will not have retail space underneath. Both developments will include a pedestrian-friendly main-street streetscape.

Centennial and Focus are trying to recycle valuable real estate into something useful, but their mission is really bigger than that: to make the shopping mall cool again, or at least cool enough that people would want to live at one. Indoor malls today are derided as relics of the 1980s, like hair bands and acid-washed jeans.

Right now, malls "lack 24/7 activity," Anderson says. To make the mall relevant in the 21st century, "it's got to be almost like a city," with a variety of other uses, including senior living, hotels and office space.

Fox Valley 1

Apartments will have to do for now. They are the preferred option today for mall owners with turnaround plans. The suburban multifamily market has made it through the coronavirus pandemic almost unscathed—both rents and occupancies rose last year—and development is picking up. Investors in other sectors, including hotel and office, are still licking their wounds.

Malls could represent an even bigger business opportunity for Anderson, who says he's been talking with other owners of local malls mulling apartments at their properties. The trend is accelerating nationwide as more department stores close and struggling mall owners explore their options.

In Northbrook, the owner of Northbrook Court was ready to begin construction on a major redevelopment that would have included about 315 apartments. But those plans now are up in the air as the mall's owner, Brookfield Property Partners, and its lender consider a sale of the property.

Adding housing to malls makes sense, but the idea works best with projects that maximize the synergies between the apartments and retail, says Gail Lissner, managing director at Integra Realty Resources, a Chicago-based appraisal and consulting firm. Just developing an apartment building on the parking lot outside "doesn't energize the mall," she says.

Focus and Centennial have avoided that mistake in Vernon Hills and Aurora, she says.

"They should both do well," Lissner says.

Read the original story in Crain's Chicago Business here.

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