Seeing Around Corners

On today’s show we’re talking about a tectonic shift that is happening in virtually every community in North America.

There is a lot of development land available in the core of major cities. Now as you’re hearing this you’re probably thinking, no there isn’t, not in my city.

But I want you to think about large land parcels that have the potential to be redeveloped. It is rare to find anything more than 5 acres in the core of a city. But these do exist.

What I’m seeing are the handful of shopping malls that have become functionally obsolete in each community. These shopping malls are every 4-5 miles apart. Many of them are dying.

At one time they had one or two anchor stores, maybe a Kmart or a Sears department store. These medium sized shopping malls were designed and built in the 1960’s and 1970’s. The large national brands have left these malls. The tenants are small independent businesses. You might find a real estate brokerage, or an insurance company, a dental clinic occupying space in the shopping mall. There might be a pharmacy or a walk-in medical clinic. But this type of use is no longer the shopping mall experience for which the space was designed.

Once an anchor to a mall is gone, it’s unlikely that a new anchor will be induced to occupy that space.

I’ve seen major development firms acquire shopping malls with a view to redeveloping those sites. They are land banking those sites in the short to medium term. It takes a while to put together a plan, get the community on board with the redevelopment of the site and complete the development.

I don’t typically give our listeners homework. But today I’m going to give you homework. This homework is for anyone who is truly interested in forecasting what is going to happen in their local community. So if that describes you, you want to pay close attention. The assignment is very simple. You mission, should you choose to accept it, is to document all of the dead or dying shopping malls. You want to figure out how large those parcels are and estimate what type of multi-family product could be developed on those properties.

Some might end up as a garden style apartment complex. Others might be a high rise project. In both cases, the limiting factor is almost always the parking density. You need to figure out will the project be limited by surface parking or structured parking. Parking nearly always consumes almost the same amount of land as the apartments.

So once you’ve gone through that analysis, you will be able to predict the projects that will come to fruition over the next 5 to 10 years. You’ll be seeing around corners and predicting what will happen in terms of new supply entering the market, before the zoning applications hit the zoning office.

The next thing to pay attention to is all of the dead or dying office buildings and make a determination which ones have the potential to be converted to residential, the hotels that have the potential to be converted to senior housing, and the ones that are functionally obsolete and can’t be repurposed.

We are at an inflection point in real estate. The pandemic has poured jet fuel on some trends that might have taken 20 years to play out. Now they’re going to happen in half the time or less.

When you start to look at a city through the lens of a developer, you can start to see around corners. Why? Because you’re the one who’s creating the bend in the road. If it’s not you, then it’s someone you know.