On a sunny Sunday morning, Italian-born artist Carlo Gislimberti pushes a cart into the DeVargas Center mall. He sets up an easel under a skylight, near an empty kiosk, and begins work on a landscape painting.
But what draws passersby are his dog portraits. Gislimberti’s pet paintings start at $450 and run up to $1,600 for a large canvas.
As he paints, a young security guard strolls by.
“You think we’ll have people today?” Gislimberti asks.
“Hopefully,” the guard says.
The exchange pretty much sums up the state of retail today.
Across town, Santa Fe Place still reels from the closure last year of two major tenants, Mervyn’s and Shoe Pavilion. And DeVargas? Before lunchtime, the mall’s busiest customer is an elderly man walking laps past several storefronts with “for lease” signs in their windows. The afternoon brings more foot traffic—but not enough to make anyone wait in line.
It’s worth checking in on DeVargas now because across the country malls are dying. Once-bustling shopping centers are becoming “grayfields”—the retail version of polluted industrial “brownfields.”
Last week, one of the nation’s largest mall conglomerates, Chicago-based General Growth Properties, filed for bankruptcy. The New York Times called it “one of the biggest commercial real estate collapses in United States history.” (The company owned one mall in Albuquerque but none in Santa Fe.)
Elsewhere, dead malls are being reborn as housing developments, while desperate landlords fill empty space with indoor water parks.
From January 2008 through the first three months of this year, US shopping malls lost 17.4 million square feet worth of paying tenants, according to Reis, Inc., a real estate research firm. Imagine the vacant Mervyn’s at Santa Fe Place 280 times over, a wasteland of gated storefronts and weed-ridden parking lots.
Is this how America’s commercial culture ends? With a pre-bankruptcy fire sale?
Architectural critic and author James Howard Kunstler, best known for his critique of suburbia, The Geography of Nowhere, thinks the current recession will forever change Americans’ shop-happy lifestyle.
“The lowering of living standards…essentially eliminates all but the most critical commerce, meaning that most of the stores in the malls and strip malls lose their customers and shed employees, while the mall and strip mall owners lose their rents, and the bankers lose performing commercial real estate loans,” Kunstler writes on his blog, Clusterfuck Nation. “As all this occurs, tax revenues go way down, schools can’t pay their employees or buy diesel fuel for their yellow bus fleets. More people lose the
ability to carry health insurance. Hospital emergency rooms are overwhelmed. Health care descends to Third World levels. Meanwhile, pensions are destroyed, the elderly live on dog food and ketchup.”
The future may not be that dire, but the fate of the mall affects even dedicated buy-localistas. Malls are some of the most valuable properties around; their tax payments keep local government running.
Santa Fe County last appraised DeVargas Center in 2007 at $20.5 million. That year, the mall’s owners paid $187,930 in property taxes—enough to pay for several teachers or police officers’ salaries, even before counting the gross receipts taxes from all the stores.
But DeVargas Center, owned by Houston-based Weingarten Realty, appears to be faring better than comparable malls in other cities.
“We’re hanging in there. Weingarten, our owner, is pretty guarded from that sort of thing,” DeVargas Center property manager Katy Fitzgerald says. “Overall, the company’s doing well, and so’s DeVargas.”
The company credits its relative health on the cheaper grocery chains and discount stores that serve as “anchor” tenants at its 335 shopping malls.
Weingarten CEO Drew Alexander’s optimism comes with a big dose of reality. “The market questions if we can survive. I know that we can,” he told investors in a conference call three weeks ago.
Indeed, there are some positive signs for the company, locally.
Fitzgerald says Mattress Firm, a Texas-based chain, has signed a lease for part of the large newly remodeled section of the mall’s southeastern corner.
In June, Atrisco Café and Bar, a new New Mexican restaurant, will open in the old Diego’s space.
And the mall will also host Sunflower Farmers Market, a Colorado-based grocery chain that portrays itself as a cheaper alternative to Whole Foods. It’s scheduled to open July 15, and the company plans to open another store at Cerrillos Road and Zafarano Drive in 2010.
Some existing DeVargas tenants are holding steady, despite the recession. People gotta eat. “Alberston’s is doing extraordinarily well, and we feel the same will happen with Sunflower,” Fitzgerald says.
On a recent visit, the Elegant Nails salon and Starbucks looked busy. Employees at Sally Beauty Supply say business is steady.
Even Zales, the diamond store, says all’s well.
“It hasn’t been slow for us at all,” Zales employee Melissa Martinez says.
People are still getting married. Mother’s Day hasn’t been canceled. And it probably helps that Zales still extends credit to customers, because “who’s going to walk in and drop $6,000?” jewelry consultant Sky Kaly says.
Yet some DeVargas tenants do appear at risk.
Among them is Santa Fe Music & Piano. Weingarten has sued the store for $11,220 in unpaid rent on its 2,700-square-foot space. The lawsuit, filed April 6 in the First Judicial District Court in Santa Fe, says the store “refuses to surrender the premises” after getting notice in late March.
Owner Sarma Taylor says following a 20 percent sales drop last December, the store applied in writing to Weingarten for a reduction in rent at the advice of the property manager. That request was denied.
“After 3½ years of always paying our rent ‘on time,’ in March of this year we did get behind and wanted to discuss our problem with the property manager. Again, seeking a rent reduction,” Taylor writes in an email to SFR. “Instead the response was a 3-day notice of eviction and a law suit against us which we believe now has hurt our business even further.”
Taylor further writes that she believes “this heavy handed action” is due to a letter she wrote to the city complaining that Weingarten was not enforcing the city’s smoking ordinance. Fitzgerald characterizes the lawsuit as “just part of the dealings” of running a mall.
Of course, a late-paying tenant beats an empty space. “Tenant retention is key,” as Weingarten’s recent investor presentation put it. Locally owned stores like Santa Fe Music provide 30 percent of Weingarten’s rental income.
Another “anchor” store at DeVargas, Office Depot, announced late last year it would close 112 stores around North America, with 14 more closures this year. (No New Mexico stores are on the list.) The closures, and a February credit downgrading by Moody’s Investors Service, prompted speculation that the chain was doomed.
“There’s been rumors nationally,” Fitzgerald says, “but as a company, they’re not declaring bankruptcy. Our anchors, so far, are very well-shielded.”
However, many of the small kiosks at DeVargas lack tenants.
And the mall recently began charging a $10 to $20 fee for usage of its formerly free “community room,” used chiefly by 12-step groups like Alcoholics Anonymous.
Jane Harvey, who organizes a macular degeneration support group that uses the space, has covered the fee herself, and asked members to chip in $1.
“We’re not charging rent or anything,” Fitzgerald says, calling the fee a carpet-cleaning deposit. “We’ve had a lot of problems with people spilling stuff.”
In this economy, a mall must find money wherever it can. Even Gislimberti, the painter, pays rent to display his dog portraits. “Nothing’s free,” he says.
And it’s good advertising—as long as people keep shopping.