Despite having a profitable year so far, the owner of Regency Square has decided it can’t afford to keep the West End mall.
Michigan-based Taubman Centers announced this week in its third quarter financial statements that it would stop making payments on the mall’s mortgage, which is set to come due in November 2011 with a balance of $73 million. Taubman has owned the mall for 13 years.
By Taubman’s accounting, the mall is underwater. In September 2009, the company wrote down the mall’s value 65 percent to $30 million from around $85 million. (Read more about this here.)
The company reported a year-to-date profit of $8.5 million compared with a more than $138 million loss the year before.
The company had renovated the mall over the past couple of years, including a major expansion of the Forever 21 clothing store.
“We had hoped that the significant investment that we made over the past few years to remerchandise the shopping center with new tenants would have made an impact on sales, however the center continues to struggle,” said Karen MacDonald, spokeswoman for the company.
MacDonald said that the mall did not generate enough cash flow to cover interest on the loan, which is primarily held by the Bank of America. The interest rate was 6.75 percent, she said.
“We did not anticipate the saturation of retail in the Richmond market, coupled with the economic conditions and the effect it has had on the moderate customer,” she said.
MacDonald also said she doesn’t expect the move to affect the company’s ability to raise capital in the future.
“We believe that our lenders will see this as a prudent, necessary decision under the circumstances,” MacDonald said.
The company, which also owns Stony Point Fashion Park and several other shopping centers across the country, acquired Regency in 1997 for $82.5 million. At that time the mall was one of the region’s most popular shopping destinations, but the retail landscape has changed dramatically.
Brian Glass, a retail broker for Grubb & Ellis | Harrison & Bates, said the news is not surprising.
“The successful lifespan of a regional mall is somewhere in the 35-year range,” Glass said.
Regency was built in 1975.
Glass said that Taubman might have sealed the fate of Regency when it built Stony Point on the other side of the river.
“It started with the two new malls opening. Some people on Southside gravitated toward Stony Point, and people on the West End got pulled the other way to Short Pump [Town Center],” Glass said.
It is a pattern that Richmond has seen before. Glass pointed to Cloverleaf as a mall that slowly declined following the opening Chesterfield Town Center and Southpark Mall in the same vicinity.
Glass said Regency still has a good mix of tenants and isn’t going away anytime soon. In the future it will probably take on more atypical mall tenants, such as a supermarket or deep-discount retail store, while the newer malls attract higher-end shops.
Rob Black, a retail broker at CB Richard Ellis, said the mall is in pretty good shape.
“I think it would be a great center to rehab. I think it’s a great site for a lot of different uses,” Black said.
If the bank does eventually repossess the property, Black doesn’t think they would have too hard of a time finding a buyer.
“It is still a good mid-market mall,” Black said.
Vacancy had also improved since the beginning of the recession according to quarterly visits by BizSense. Only 10 percent of the malls storefronts were unoccupied as of July, compared with more than 20 percent in the spring of 2008.
Read more: Remaking the mall, one hole at a time