The Role of Land Banks in Resurrecting Dead Malls When long-shot 2020 presidential candidate Andrew Yang announced his policy platform on saving dead and dying American malls there was plenty of criticism on how attainable the goals of the proposal were; what many did seem to agree on though was the fact that American malls, once the epicenter of suburban commercial life, were in need of saving . In a country where there are 23.5 square feet of retail per person, four times as much as Great Britain, it can be easy to understand the colossal impact of the “retailpocalypse” that is slowly playing out in the daily headlines . One often-cited 2017 report by Credit Suisse noted that between 20 to 25% of the United States’ 1,000 malls will close by 2022 , and this doesn’t include the 500 or so malls that have already closed in recent years . Others have put the number of closures closer to 30%. The impact of a mall closing can exacerbate an already challenging economy that some communities face, such as those struggling already with residential foreclosures and smaller populations . These communities, with smaller populations and lower incomes, are the ones getting hit the worse by the closures. Malls, like other types of retail, are split into three, sometimes four, classes with Class A being the most desirable. These Class A malls are the large primary malls within a metropolitan area. They pull in at least $500 in sales per square foot and are still performing “exceptionally well,” according to industry analyst Alan Esquenazi of CREC . The problem, for now, is with the smaller Class B, with sales of $300 to $500 per square foot, and Class C, with sales under $300 square foot . In speaking with the publication National Real Estate Investor last year, the Director of Research for commercial real estate data firm CoStar put it bluntly; “We don’t think [class] B malls will exist going forward. ” Once a mall does eventually close, it can create an entirely new set of issues for a community. Abandoned properties are more than just a financial threat; the U.S. Fire Administration estimates that 28,000 fires occur annually in these properties resulting in $900 million in property damage, more than 200 injuries, and an average of forty-five deaths per year. They also weigh heavily on local resources. One study in Oklahoma City found that despite abandoned properties only making up 3 percent of the city’s commercial properties, they account for approximately 40 percent of all police and fire calls. This existential crisis facing suburban and exurban communities have some turning to new ways of addressing the issue. One promising solution that has become more popular in recent years is the use of land banks. History of Land Banks Land Banks are government or quasi-government that work with a community to ensure economic stability via the conversion of vacant, abandoned, blighted, or tax-delinquent properties back into positive assets for the community. In introducing his guide to Land Bank Authorities, land bank expert and Emory University Sam Nunn Professor of Law, Emeritus, and co-founder of the land bank advocacy organization the Center for Community Progress, Frank S. Alexander explained that land banks, while typically focus on private property, that is not always the case. “In addition to dealing with private properties, land banks are one vehicle for management and disposition of public assets in a comprehensive manner that can maximize local policy goals. Public assets fall into two primary categories for these purposes: land actually owned by local governments, and public liens on privately owned lands.” By freeing the local government from legal structures, a land bank can encourage the transition of underperforming or blighted land into better-performing assets. Still, first, there must be state and local legislation to allow for the creation of land banks. Alexander explained, “Given appropriate legal and administrative mechanisms, land banks can remove redevelopment barriers that hamper the creation of functioning private markets for the conversion of abandoned land to better and higher uses. They can also facilitate the realization of public policy goals such as provisions for affordable housing, stabilization of residential neighborhoods, development of green spaces, and revitalization of brownfield.” Land banks are a newer phenomenon with the nation’s first being established in St. Louis, Missouri, in 1971. Five years later, Cleveland, Ohio, followed St. Louis’ lead. By 1991, the nation had four with the addition of Louisville, Kentucky in 1989, and Atlanta in 1991. These four are what is known as the “First Generation” of land banks. The Cleveland Land Bank was founded in 1976 as the second land bank in the nation. It was in reaction to two decades of declines that saw its population shrink by 18%, and tax-delinquent parcels in the city swell to over 11,000. The years after the land bank was formed weren’t any better for the city. Between 1977 and 1987, it saw a 58% increase in vacant parcels and a 37% increase in residential tax delinquency. By 1988 state authorities agreed to permit the abatement of property taxes on the land banks property holdings while also creating a dedicated fund for prosecution of delinquent tax cases. Two more waves followed those first land banks with the second beginning in the early 2000s thanks to some states, most notably Michigan, revising their tax laws and the third wave coming in response to and after the foreclosure crises of The Great Recession. This third wave has been the most impactful. In 2007 there were fewer than a dozen land banks across the nation. Today there are approximately 170 active land banks in the United States, with the largest concentrations being in New York, Michigan, Georgia, and Ohio. It was the first and second wave that led to a number of Ohio’s land banks, with Cleveland’s modern Cuyahoga County Land Reutilization Corporation forming during the second wave. In the past twenty years, Ohio’s total GDP has added more than 300 billion dollars, but during that same time, the population has grown by only 450,000 people, with the majority of that, 290,000, added prior to 2008. This economic growth wasn’t enough to stop Ohio from a foreclosure crisis that shook the state. Cuyahoga County, like other parts of Ohio, saw a foreclosure predicament well before 2008. Between 1995 and 2007, the county saw residential foreclosures more than quadruple. Statewide they more than quintupled. By 2007, one out of every 60 housing units in the state was in foreclosure. Cuyahoga County saw more than 14,000 residential foreclosures in 2007. In January 2009, Ohio Governor Ted Strickland signed S.B. 353, enabling any Ohio county of more than 1.2 million residents to form a county land reutilization corporation (CLRC). In the years since the initial bill, Ohio has expanded access to land bank creation to now include all counties within the state. With plans in place ahead of the 2009 decision, Cuyahoga County Land Reutilization Corporation (CCLR) was founded just weeks after receiving permission from state leaders. That same year Cuyahoga County saw more than 1,200 structures demolished, nearly nine times the amount it had seen only four years prior. By June 2018, the CCLR was credited with more than 8,000 demolitions and almost 2,000 home renovations. The issue in Ohio isn’t just one of residential properties. By 2017, the Northern Ohio area anchored by Cleveland had nine dead or dying malls. Cleveland, while familiar with the concept of land banks thanks to their 1976 venture into them, looked to Flint, Michigan, when developing their updated proposal that was approved in 2009. Ohio’s 2009 county land bank program and its evolution in land bank legislation since found inspiration in Michigan’s Genesee County Land Bank that was founded in 2002 along with the corresponding Michigan support of it. Genesee County, the home of Flint, first approached land banks via a state law that allowed urban cooperation agreements. The agreement between Genesee County and Flint, Michigan, granted the land bank to begin the process required to fix blight in the area thanks in part to the state’s updated foreclosure laws before which a single foreclosure was a four to seven-year process and offered no clear title judgment. Michigan’s updated foreclosure laws (P.A. 123 and a subsequent P.A. 258), while providing municipalities with a more streamlined approach to foreclosures, still didn’t address many of the issues the new land bank was running into. In 2004, the Michigan Land Bank Act and four related Acts passed, clearing multiple hurdles that the Genesee County Land Reutilization Council (LRC) had encountered. The 2004 legislation cleared the way for land banks, allowed for all property within their possession to be declared “blighted,” exempts land bank properties from taxes including certain taxes for up to five years after the property is sold, eases the title request process. With the hurdles, it once faced now out of the way the Genesee County Land Reutilization Council transfigured into the Genesee County Land Bank Authority (GCLBA). Within ten years, the GCLBA had acquired over 15,000 properties, sold nearly 7,000 properties, and received over $55 million in grant funds. Land Banks & Dead Malls A 2018 study of Michigan land banks saw that out of the 21, which responded to the survey, only 29% answered that they “sometimes” redeveloped abandoned commercial properties while 43% noted that they “never” do so. This, despite 45% of respondents stating that improving the tax base was “very important” to their land bank’s mission, and 38% said answered the same for increasing economic development. While most land banks are focused on residential properties, the GCLBA – which unfortunately did not participate in the statewide survey mentioned above – has been far more aggressive with commercial properties. In 2013 alone, the land bank has 174 commercial structures and 295 commercial lots in its inventory. This doesn’t include four mixed-use projects that it participated in, which helped create modern commercial spaces within the downtown area while also offering 140 units of housing. Those four projects alone were an investment by the land bank of nearly $38 million. Then there’s the General Motors complex in the Great Lakes Technology Center. By 2006, G.M. had planned to demolish the 485,000 square foot, four-building complex. Instead, the land bank acquired it and began the search for new tenants. By 2011, the entire complex had been sold off with the Insight Institute of Neurosurgery and Neuroscience (IINN) buying most of the land bank’s buildings. IINN began bringing in other new tenants, and together with Diplomat Pharmacy, the complex now employs more than 1,000 people. Other commercial success stories by the land bank include a hotel “flophouse” that was transitioned into a mixed-use building that included 21 residential units, including 11 affordable ones, and two commercial units, and a large clothing store that the land bank redeveloped in house as a mixed-use development. By working with commercial spaces, the land bank is also able to provide more opportunities for local small business owners and entrepreneurs. Frank Alexander noted last year in a Wall Street Journal article that while recovery from the 2008 recession has been noticeable in some communities, the recovery hasn’t been as even with smaller communities now turning to the Center for Community Progress, where he still serves as a senior adviser, on how to deal with abandoned retail complexes. That WSJ article stated that while it is difficult to count the number of mall takeovers by government entities accurately, this a growing trend across the country. One difficult obstacle for retail projects like enclosed shopping malls is multiple landowners. Often a shopping mall will have one owner for the central spine of it with each of the anchor stores having a separate owner. This can make obtaining the full site difficult and has been a significant roadblock in the redevelopment of some malls, such as St. Louis’ Jamestown Mall. There the land bank had to work in a piecemeal approach, acquiring each piece of land as it became available before successfully condemning the rest of the complex, which caused negotiations between the remaining owner and the city’s economic development board to finally be completed. Back in Ohio, the Cuyahoga Land Bank has seen itself involved in a number of commercial land assembly initiatives. The land assembly initiatives by the land bank have seen two historic theaters being preserved and the transition of a dead mall into an Amazon Fulfillment Center. That dead mall transition received national attention when Newsweek picked up on the story, in part because of the fame that the previously abandoned mall had received. Ohio has been fighting to turn the tide on the narrative that is malls and economy are dead. Still, seemingly countless social media influencers and television series have visited Ohio to check out its infamous dead malls. By 2012, retail vacancy in northern Ohio had reached 12.7%, with it hitting Class B and C shopping centers the hardest. When Malls Are No Longer Malls Ohio’s land banks received a significant victory in early 2019 when Summit County Land Bank announced a deal with Amazon to redevelop the Rolling Acres Mall. When it opened in 1975, Rolling Acres Mall was the world’s largest shopping center and the crown jewel of Akron. While the economy was bumpy, the mall saw the demand and expanded until the mid-1990s. But by the early 2000s the story had turned; in 2008, the power was shut off after months of unpaid bills. By then the only retail tenant still operating in the mall was a Dollar General. In recent years, Rolling Acres Mall became infamous for its rapid decay and quickly became a poster child for dead malls around the world. By 2016, the local land bank was actively working to demolish large amounts of the mall to discourage trespassing. The trend isn’t exclusive to Ohio. Between 2016 and 2019, 7.9 million square feet of retail space has been transformed into nearly 11 million square feet of industrial space. While fulfillment centers, self-storage, data centers, and other warehouse-like uses do address the issues around activating once unused or underused spaces in some cases, they may not be an ideal solution. Of the 200 malls that closed between 2006 and 2016, less than 50 of them were converted to uses that didn’t include some form of physical “bricks-and-mortar” retail. That 11 million square feet of new industrial space from former retail space comes from only twenty-four locations. Transiting these spaces to industrial uses also means a decline in public ‘third places’ for the community and offer fewer fiscal benefits, especially for local small business owners, that more traditional retail can provide. Many malls have multiple anchor tenants who are designed to drive traffic to the mall, once these tenants began to close the mall, and the surrounding area is negatively impacted. While warehouse uses may address the immediate issue of filling the space, the reliance upon a single tenant could create an even exacerbated issue once they leave. Malls as Cultural Hubs In 2009, the second-largest mall owner in the nation, General Growth Properties Inc. (GGP), filed for bankruptcy in what at the time was the largest real estate bankruptcy in U.S. history. Prior to its bankruptcy, GGP had announced plans to reimagine many of its malls into mixed-use “lifestyle centers” that included outdoor street like retail corridors, office space, and multi-family housing. In 2018, Brookfield Property Partners acquired GGP for $14.8 billion, and within months confirmed it would be moving forward with a plan nearly identical to the one that GGP had laid out more the decade earlier. Altogether Brookfield will transition 100 of GGP’s one hundred twenty-five malls into “mini-cities” in an attempt to “future proof” the retail centers. These new mixed-use centers will look different in each location but will include a mix of retail, office space, housing, entertainment, and, in some cases, lodging . In her groundbreaking book, The Sprawl Repair Manual, author and leading urban redevelopment thinker Galina Tachieva lays out the case to transition malls to mixed-use lifestyle centers. “Malls are the most promising contenders for sprawl repair. Because of their location, parcel size, ownership structure, and opportunities for transit and mixed uses, they have great potential to be transformed into town centers or transit-ready urban cores.” In Ohio, the first new mall in the Cincinnati area since 1989 opened in 2015. In their ‘Future of the Shopping Center Industry’ report, the International Council of Shopping Centers (ICSC) pointed to this new mall, Liberty Center, as an example of the future of the industry due to its cultural hub design and ability to monetizing public spaces through sponsorship deals. The Liberty Center mall was groundbreaking for the region for a number of reasons. The 1.3 million square foot mall complex included 75,000 square feet of office space, 240 residential units, 130 hotel rooms, and 90,000 square feet of entertainment uses. On its website, the lifestyle center defines itself as “holistically designed with a mindful approach to building enduring relationships between local business, people and place” and claims that it is “the most community-centric and balanced approach to private-public partnerships in the region.” Tools that Land Banks and Malls Can Learn From That last quote from the center’s website gives some indication of what makes Liberty Center unique, beyond its successful mix of uses and public spaces. Butler County and Liberty Township, where Liberty Center is located, looked to a 1972 law to assist them with addressing the negative impacts of the new complex. Chapter 349 of the Ohio Revised Code allows for municipalities to create new community authority or “NCA” to oversee districts with further investment in them. By taking this authorization ability and coupling it with revitalization and financing, tools allow for more funding accessible of infrastructure creation, public property improvements, land acquisition, and defraying costs on public infrastructure. For Liberty Center, $49 million was provided to the project with $37 million of that being via bonds from a collection of local government entities, including the new community authority. The community authority oversees the repayment of the government provided loans and bonds. Despite the law originally being designed with residential uses in mind, more recent updates to it have allowed it to be used on mixed-use and commercial projects. The Ohio program, which has seen an increase in interest from developers in recent years, provide some of the same functions of Mello-Roos Bonds but have a far more extensive range of financing, oversight, and provide advantages to prospective bondholders due to their payment obligations. Conclusion With more traditional malls likely to close in the coming years, it is paramount that communities prepare for their death. Communities already struggling will be the ones on the front lines of the fight. They will be required to challenge their understanding of what a mall is while also having to make difficult decisions on what they want to do with the retail centers. Some will choose to transition the commercial properties into industrial uses; others will find reimagined uses that are more in line with traditional town centers. The past two decades have been evidence that with the correct tools and financing mechanisms, communities can create positive outcomes even in the face of the “retailpocalypse.” - All images via Ken Storey -
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