A Tale of Two Shopping Centers

The Naperville Crossings shopping center at 95th St and Rte 59 was recently purchased by a real estate investment trust, Phillips Edison, with an extensive portfolio of grocery-anchored shopping centers.

In the current retail environment, where the common trend sees a lower need for physical space due to online shopping, the average shopping center is not a desirable asset for investors. What made Naperville Crossings buck that trend? “Well-located,” with a “vibrant and growing neighborhood” that will see some 800 new residences in the coming years. There is a high-end apartment complex planned for next door and a large apartment complex already in the area.

In other words, it enjoys an expanding, affluent customer base, which can offset any shopping decline that might otherwise be expected.

But what really helps this property’s outlook is it’s mix of tenants, which qualify it as e-commerce-proof. This coveted category represents a path for the retail real estate market to immunize itself against the retail apocalypse, brought about by online shopping, and the trail of vacancies it leaves behind. It comprises tenants who don’t need to go toe-to-toe with the likes of Amazon or eBay to be successful, because they offer what online retailers cannot. They include: Fitness centers, beauty spas, pet stores, personalized tutoring, restaurants, dry cleaners, furniture stores and walk-in health care.

Using this yardstick, Naperville Crossings scores well for including over a dozen restaurants, ten health and beauty stores, and a number of specialty and service-oriented stores. Not to mention a big movie theater! The success of this segment doesn’t mean there won’t be further contraction in the retail real estate market, though.

Go through the directory of the average regional mall like Fox Valley and you find a collection of businesses that heavily skews to clothing, with jewelry coming in a distant second. Glossing over the trend against trekking through an enclosed mall in favor of more accessible “Main Street” shopping layouts, there doesn’t appear to be enough (willing) e-commerce-proof businesses to keep filled these hollowing-out cathedrals to past retail glory. So it’s no wonder that there are discussions about taking it down.

A more immediate question for those on the north side of town is what is to be learned from Naperville Crossings when comparing it to the Ogden Avenue corridor—the stretch between Washington St and Naper Blvd that has a number of lingering vacancies, some of which have seen no tenant in over a decade.

It is because of them that the community has repeatedly called for help from the city and it’s public/private community development group. In response, Mayor Chirico said during his first run for mayor that addressing those vacancies was a top priority. The area didn’t enjoy such a high billing in his second run, though. The only visible city effort of note in recent years, brought up by the Naperville Development Partnership, was a discarded plan to spruce up the landscaping and signage along the corridor as part of a rebranding effort. This would’ve been paid for by the nearby businesses through a special tax, which they opposed for having little commensurate impact on their sales.

Now, the average driver might not see a problem with that corridor as most storefronts are occupied. The notable, but not only, black spot is the development near the east end—the Ogden Mall. Being well set back from Ogden Avenue masks this mall’s high vacancy rate. It suffers from more than merely being a victim of the growth in online shopping, though. The aging landlord reportedly sees more financial benefit in the tax write-offs from his many vacant storefronts versus investing in keeping the place occupied and an asset to the community.

Couple that with the city having few options in dealing with a truant landlord and you have a partially derelict eyesore, with a crumbling parking lot to boot, that lives on year after year. I could talk about the cities who have enacted policies that discourage retail landlords from preferring vacancies, but that gets us too far afield.

Ultimately, the day will come when that mall will see reinvestment—most likely by a new owner. The path to bringing a mall back from largely empty to thriving, assuming that remaining a mall is a viable option, could include the lessons from Naperville Crossings, as well as the direction the Fox Valley Mall might go in.

That means:

• Reconfiguring the mall to follow contemporary design practices—a “Main Street” layout that feels more like a walkable community than a strip mall.

• Targeting businesses who fall within the e-commerce-proof category: Service-oriented, restaurant, health and beauty, wellness, entertainment, experiential (think, say, a business that combines the Children’s Museum, Build-A-Bear and Chucky Cheese), etc.

• Adding residences to the property to augment the customer base the stores will draw from. One reason the 5th Avenue redevelopment plans include a large chunk of residential: it really helps the viability of the large number of retail stores that the developer desires to build.

• Pop-up stores, where online stores try a physical presence without the long-term commitment the average lease demands. Think months instead of years, and the ability to move to a new location as local interest wanes.

The Ogden Mall’s location should make it a successful development, particularly as it is not a physically constricted property like most of the retail properties in the Ogden Corridor. It’s owner is clearly not interested in capitalizing on the location, nor has the city shown that it is truly motivated to bring change. But it is still a salvageable property.

The really hard part is getting from here, a mall that scores low on the key metrics investors look for, to there, where a developer offers a redevelopment plan we can talk seriously about. I wish I knew how many years it will take to get there.