Connecticut’s tale of two retail environments
The current state of retailing, as played out in malls and shopping centers across Connecticut, is the equivalent of a Dickensian vision come to life.
For retailers in well-heeled Fairfield County, it is the best of times, even as online shopping continues to grow and drive some retailers out of business.
Mall developer Brookfield Properties is still saying the 700,000 square-foot SoNo Collections in Norwalk is on schedule to open sometime next year. Other Fairfield County malls are also doing well: Clothing retailer H&M is returning to the Danbury Fair Mall sometime next year after closing a store there in 2014.
But the less prosperous side of Connecticut’s tale of two retail environments is being played out across much of the rest of the state. Some malls are struggling and others have key indicators headed in the wrong direction
Credit rating service Fitch Ratings last week downgraded its ratings for a loan pool made up of regional malls around the country, the largest of which is the Crystal Mall in Waterford. Indianapolis-based Simon Property Group, which owns the successful Clinton Crossing Premium Outlets, also owns Crystal Mall.
Sears is closing its store in the Crystal Mall at the end of the month. Melissa Che, a senior director with Fitch, said there are a number of unknowns with the Crystal Mall.
“With all the unknowns, we don’t have a clear view of how it will get by,” Che said of the Crystal Mall.
The current Crystal Mall loan was securitized as part of a 2012 commercial mortgage-backed securities transaction, she said. The 2012 loan was a refinance of existing debt on the mall, according to Che.
The Sears space in the mall is owned by Seritage Growth Properties and therefore , is not part of the collateral on the loan, she said.
“It is not clear at this time what the plans are for the redevelopment of the space that after Sears vacates,” Che said.
Another of Crystal Mall’s anchors, JCPenney has its lease coming up for renewal in November 2019, she said. But JCPenney’s sales per square foot in its Crystal Mall space were down to $90 per square foot in 2017 from $127 per square foot when the loan was originated in 2012, according to Che.
Other important indicators of underperformance include declining net operating income and occupancy, she said.
“Net operating income for the collateral in 2017 is down 23 percent since issuance,” Che said. “Collateral occupancy as of June 2018 is down to 80 percent from 87 percent at issuance.”
Finally, when the Crystal Mall loan was originated, in-line tenants — those occupying less than 10,000 square feet — were producing $315 per square foot of sales, she said. That figure is now down to $298 per square foot.
Les Morris, a spokesman for Simon, did not respond to several attempts to contact him last week for comments of how Fitch’s downgrade might impact Crystal Mall.
But what is perhaps a harbinger of an even more grim retail future is being played out in Enfield.
The Enfield Square Mall, located off Interstate 91 just south of the Massachusetts border, was scheduled to go up for auction starting Monday . The three-day auction of the 677,223-square-foot mall is being done online and Jones Lang LaSalle, a Chicago-based investment management company, is marketing the property.
The minimum bid that will be considered as part of the auction is $3.8 million. Interest bidders must submit a participation deposit of $50,000.
Enfield Square was built in 1971 and the mall was last renovated in 2001. But it currently has an occupancy rate of just 57.5 percent and its only remain anchor is Target.
Officials with Jones Lang LaSalle did not return calls for comment about the auction. Town officials in Enfield as well also did not respond to requests for comment.
Donald Klepper-Smith, chief economist and director of research for New Haven-based DataCore Partners, said even though Connecticut is small, the idea of boom and bust in the state’s retail economy should not come as a surprise.
“There is not a one-Connecticut economy,” Klepper-Smith said. “There are pockets of weakness and strength all over the state.”
Some of the reasons for success has to do with location, he said.
For example, the Tanger Outlet Center that is part of the Foxwoods casino attracts consumers who are already predisposed to spending money. And SoNo Collections is in the heart of Fairfield County, which according to census data, is the fourth richest metropolitan area in America, with almost 20 percent of households earning at least $200,000 a year.
Klepper-Smith said another reason that some malls are doing better than others is the fear the nation will soon be in a recession. The economist is predicting there is a 50-50 chance a national recession will hit in the next 12-to-15 months.
“People are shopping differently because they believe they may not have money to spend in the future,” Klepper-Smith said. “This is an environment in which you would think people would probably need to be careful. But we’re not talking about making rational decisions: So much of what consumers do is based upon emotion.”
David Cadden, a professor emeritus at Quinnipiac University’s School of Business, said the consensus of many retail experts is as many as 25 percent of the nation’s shopping malls will have closed by 2022. Cadden declined to predict if that will happen in Connecticut.
“There has been overbuilding of malls for decades,” Cadden said. “But the top 10 percent of malls are still making money.”
In addition to the growth of online shopping, Cadden said what attracts consumers to malls has changed.
“They are no longer there to sell products,” he said. “They are there to provide experiences.”
Given the unsettled environment, why would any developer want to build a new mall or shopping center. In addition to the SoNo Collections, plans are still moving forward for a upscale outlet center on West Haven’s waterfront, right off Interstate 95.
“The top mall now is only as good as the next one that comes along,” Che said.