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For Some Struggling Malls, Churches Offer Second Life

Posted by Yijy8kNUMO on October 10, 2017

Neighborhood shopping centers being battered by store vacancies are finding solace in churches.

As retailers consolidate and shrink the number and sizes of their stores, retail center landlords, especially in weaker markets, are being forced to consider a wider range of prospective tenants that might not fit the conventional retail mold. Among them: houses of worship.

“Having a church becomes an asset because it creates a mixed-use space,” said Rodney Arnold, pastor at OneLife Church, based in Tennessee. The church leases space both in Powell Place Shopping Center and at an out-parcel building near Knoxville Center Mall.

Until recently, property owners have turned mainly to theaters, restaurants, medical and wellness clinics and bowling alleys to fill space formerly occupied by retailers.

Churches usually weren’t in the mix. Shopping center owners prefer tenants that draw foot traffic on a daily basis, and often consider churches to be second-tier tenants since they aren’t typically open all week.

What’s more, if rents aren’t paid, landlords might find it harder to evict a church than another tenant.

But in weaker markets where vacancies are higher, it is more difficult for landlords to find complementary retailers, and churches are becoming palatable options.

“Churches are in the category of secondary uses for retail centers like charter schools and government offices,” said Lori Schneider, senior managing director at property service firm Marcus and Millichap. “But depending on the amount of space they occupy, they could change the profile of the center.”

According to a Wall Street Journal analysis of August 2017 data from the Directory of Major Malls that tracks about 8,200 retail centers in the country, at least 111 malls and open-air centers have a church in them. Some have two or more.

The Outlets at Loveland in Loveland, Colo., has been an incubator for three churches and a synagogue. The tenants are a welcome addition in a market that is overly saturated with retail space, said its owner, Craig Realty Group.

At one point, the Outlets, which has a gross lease area of 330,000 square feet, had been as much as 45% vacant, after another 700,000 square foot retail center opened in 2005 nearby.

“We’re not in the church business, but we’re in the business of providing space for a purpose,” said Steve Craig, president and chief executive officer of Craig Realty Group.

The Outlets started with a 6,000 square foot lease to a synagogue in 2008. Three other churches subsequently approached the landlord, and as their churches grew they started to lease more space. In all, the Outlets now leases a total 34,000 square feet to the four tenants, which bring roughly 1,000 people to the center on the weekends and about 500 people during the week, depending on the time of the year and the events they hold, said Mr. Craig.

“We’ve been delighted by that experience. I’m not saying that I’d do it for every property, but for this it makes a lot of sense,” said Mr. Craig. The property is now about 70% leased.

In Grand Cities Mall in Grand Forks, N.D., there are three churches located in the enclosed mall. The previous out-of-town owner had neglected the property, and the mall was bought in 2015 by Hope Church, which occupies the west side of the mall. The three churches, Hope Church, Thrive Church and Faith Presbyterian Church, have a total of 1,435 congregants at a given weekend, estimated Louis Christoffer, manager at Grand Cities Mall.

“There have been efforts to make it more community-focused, including the addition of an indoor playground,” said Mr. Christoffer, adding that there have been other tenants that have been brought in since, including a women’s pregnancy center, a music school and a lightsaber combat academy.

One advantage in bringing in a church as a tenant is that it requires less tenant improvement allowance. Another plus: churches don’t place restrictions on landlords such as prohibiting it from leasing space to other churches. Churches might also help diversify the center’s credit exposure beyond the boom-bust cycle of retail tenants.

But sometimes, there are other hurdles.

In Knoxville, OneLife Church had eyed space that had been formerly occupied by shoe retailer Just For Feet. But the city had an ordinance prohibiting business from selling beer within 300 feet of any church or school, and the owner of Knoxville Center Mall worried about the possible loss of beer permits held by restaurants on the premises.

The City Council last October approved an amendment to remove the distance requirement for churches.

“Once the alcohol restriction was removed by the city, it was a nonissue,” said Patrick King, community development specialist at Knoxville Partners, which owns Knoxville Center Mall. He said the firm could consider having other churches in the mall.

“Malls are big spaces that need and accommodate a variety of uses,” he said.

Source: Wall Street Journal, October 10, 2017 7:00am

Author: Esther Fung

Image Credit: Onelife Church

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