New uses for old spaces
Local lawmaker’s bill aims to help redevelop empty malls and offices
South Mall in Salisbury Township has seen its ups and downs in recent years. It lost its anchors, such as Bon-Ton and Stein Mart, but continues to soldier on.
The last couple of months have been typical of its fortunes: Giant announced that it was relocating its supermarket to the mall from Emmaus Avenue, but shortly afterward a prominent retailer — South Mall Mercantile — announced its impending departure.
Of course it’s a problem that goes beyond the Lehigh Valley. As consumer tastes have changed toward e-commerce with Amazon and other internet sites — with a push forward during the COVID pandemic — brick-andmortar retail has been in a slow, but steady, retreat.
The question becomes, what to do with empty space? An empty anchor or big-box store eventually can be an eyesore in the community as officials and developers figure out what to do with them.
A bill proposed by state Rep. Josh Siegel, D-Lehigh, would help redevelop and revitalize underutilized shopping plazas, shopping malls and empty office buildings.
“I think they are continuing to struggle after COVID as e-commerce continues to grow in prevalence,” Siegel said in an interview with The Morning Call. “That space is going to become increasingly less valuable and vacancies will increase.”
The bill, HB 1799, is part of a package that is intended to address affordable housing in the state. It was introduced in October and is in the Local Government Committee. Siegel said he anticipates the bill will be voted out of committee to the full House this year.
Siegel said he hopes communities can transfer these empty buildings into things such as
mixed-use developments that resemble traditional downtowns, where residents can live, work and play.
“The general market is shifting away from that form of consumerism, people want more walkable, mixeduse communities,” Siegel said. “They want to be able to leave their apartment or their home and walk and shop on Main Street, not necessarily to drive and park. Obviously some malls will endure; King of Prussia will continue to do well. We’re a country that is oversaturated in terms of retail space. You’re going to continue to see that industry in that sector suffer under the current dynamics.”
How much of a decline?
In the Lehigh Valley, it’s not just South Mall looking for tenants. Whitehall Mall has been under redevelopment as it was hit by vacancies after COVID, and Palmer Park Mall has seen tenants coming and going at a steady pace.
An exception is Lehigh Valley Mall, which has all three of its anchors, an occupancy rate of around 94%, and is basking in the local limelight with the opening of a long-awaited Cheesecake Factory restaurant. Iron Hill Brewery, another regional dining favorite, will be making its Valley debut next year at the mall.
Yet overall, the decline is expected to continue, according to a study by Capital One Shopping Research, which said there were 25,000 malls of all sizes nationwide in 1986. That’s down to about 1,150 malls in the U.S. today, but that may decline to as few as 150 by 2032.
And when they close, the average time they sit empty is about four years.
Loren Keim, owner of Century 21 Keim Realtors in Allentown and a professor at Lehigh University’s College of Business, told The Morning Call last year that many of the anchor vacancies may last 10, perhaps 20, years.
“Part of the challenge with any of these shopping centers has been, whether it’s a shopping center or mall, is that the number of anchor stores that are out there that can take up space is dwindling,” Keim said.
Giant is scheduled to fill the former Bon-Ton anchor at South Mall in 2025, seven years after the department store closed.
Capital One also said malls are losing their value, with the average vacant mall selling at 43% below its acquisition price.
While many developers keep up the search for retailers to move in, or find uses such as medical or office space, some simply decide to start from scratch by tearing down the structure and building something new. Capital One found that: 16% of empty malls reopened as mixed-use centers.
8% of vacant malls became warehouses, 7% became residential housing, 5% became delivery or distribution centers.
4% of vacant malls became community college or university spaces; a further 4% became health care, hospital or medical facilities.
25% of vacant malls reopen for other purposes.
20% of vacant malls are rezoned.
Banks finance 41% of repurposed malls.
18% of repurposed vacant malls are financed by retail real estate investment trusts.
17% of repurposed malls are financed by private investors.
5% of repurposed malls are funded by governments (local, state or federal), 2% are financed by credit unions, and 15% have other sources of financing.
Siegel’s solution
Siegel said his bill would create a local tax abatement for municipalities to help revitalize closed, or soon-to-be-closed, stores. He said there are efforts in the House to help developers obtain properties.
A key would be to cut down on the number of the financial dangers associated with investing in such projects.
“The redevelopment projects, especially if you buy a 60-, 70-acre mall, you’re talking several million dollars off to bring revitalization,” Siegel said. “So that’s a considerable risk for developers to take off.”
The municipality would be a partner in the revitalization. There would be a 10-year property tax abatement, similar to a Local Economic Revitalization Tax Assistance, a state program that allows local taxing authorities to provide tax exemption. The purpose of the legislation is to incentivize redevelopment of aging or deteriorating properties.
LERTAs have been used in the Lehigh Valley for various projects. For instance, Northampton County Council approved such a program for the River Pointe Commerce Park in
Upper Mount Bethel Township last spring — although on Thursday, county Executive Lamont G. McClure called on council to revoke the approval. Later in the year, council voted against a LERTA to redevelop the former Dixie Cup plant in Wilson.
Bethlehem has discussed declaring the former Martin Tower site at Eighth and Eaton avenues “deteriorated” to make it eligible for a LERTA.
“Here, you’re basically abating all increases in property taxes,” Siegel said. “The idea was to give the developer a degree of certainty and a long window, basically to make sure that they can take on that risk. There’s the opportunity for an additional five years in the basement to allow the developer to work collaboratively with the municipality.”
Under the program, the municipality can choose from a list of options, such as building affordable housing.
“There is a bucket of items that the municipality can select from, they can ask the developer to work toward it,” Siegel said. “The developer can extend [the abatement] by an additional two years if they agree to be one of the standards.”
There isn’t a standardized percentage as communities may have different needs, he said.
“They may need more workforce housing and market-rate housing,” Siegel said. “So I didn’t want to set an arbitrary percentage, but it’s at that discretion.
“So let’s say we want a developer to redevelop Whitehall and they said we’d like 15% of all of the units that you build on-site to be affordable and attainable. So that’s one of the ways we can also integrate green space, parks and open spaces and things like that by creating a bucket of items that the municipality can use, in exchange for expanding or extending that rebate program.”
If it becomes law, Siegel said, property owners would be encouraged to think more critically about how they want to use the space. With increased value and foot traffic, a municipality should see more tax revenue.
“These mixed-use redevelopment projects are actually more lucrative in the mall that they have,” Siegel said. “They generate more tax revenue. There’s more opportunities for leasing. You’re building housing, you’re potentially building industrial.”