Struggling CT malls eye multifamily housing to fill empty retail space

Contributed The proposed redevelopment of the Connecticut Post Mall in Milford aims to create a live, work, play vibe.

Contributed The proposed redevelopment of the Connecticut Post Mall in Milford aims to create a live, work, play vibe.

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Two Connecticut mall operators are seeking to convert part of their properties to multifamily housing, as they join the nationwide struggle to reinvent large indoor shopping centers suffering from high retail vacancies.

Redeveloping mall space into apartments is a growing concept that industry experts say can help turnaround struggling retail centers, and boost the limited housing stock throughout Connecticut, which is grappling with a shortage of nearly 90,000 affordable rental units, according to the National Low Income Housing Coalition.

The owner of Danbury Fair Mall, California-based real estate investment firm Macerich, has proposed a zoning change that would allow it to convert the 116-acre property into mixed-use, including residential. Other non-retail options that have been floated include an adult day care center, assembly hall, college campus, or even an ice rink.

The redevelopment plan includes 144 new apartments in a 75,000-square-foot former Lord & Taylor department store, along with restaurant and retail space as part of a “24-hour living” environment.

The Danbury Fair Mall contains 1.6 million square feet, which represents roughly 40% of the retail space in Danbury. However, “the simple retail economic fact is that all 1.6 million square feet cannot be maintained as pure retail space into the future,” said Thomas W. Beecher, an attorney who represents the mall owner. “Flexibility of uses are needed.”

That’s the same sentiment shared by the owner of Milford’s 1.3 million-square-foot Connecticut Post Mall.

Austin, Texas-based Centennial Real Estate has been granted a zone change to create a mixed-use “live, work, play” area within Connecticut Post Mall, along Route 1, that could include up to 750 apartments, built in three phases.

Death and rebirth of U.S. malls

The 1970s brought an explosion of mall development. According to Forbes, the number of malls in the U.S. grew more than twice as fast as the population between 1970 and 2015.

A 2017 report by Credit Suisse estimated that 20% to 25% of malls would shutter by 2022, largely because of store closures. Newsbreak.com said the U.S. had around 2,500 malls at its peak, but only about 600 to 700 remain.

In Connecticut, a number of malls in Waterbury, Enfield, Waterford and elsewhere have faced significant challenges with high vacancies, especially in the wake of store closures by major brands like Lord & Taylor, Macy’s and Sears.

Other retail centers, like Westfarms in Farmington, have fared better.

Malls across the country have been reinventing themselves for years, converting empty retail space to various uses like entertainment complexes, healthcare facilities and even pickleball courts.

Housing is a new twist in the evolution of Connecticut malls.

Richard M. Smith

Milford Mayor Richard M. Smith said malls are becoming outdated, and in an age when Amazon has taken over the retail market, “we’ve got to re-imagine.”

Phase one of “The Post” redevelopment includes demolishing a portion of the Connecticut Post Mall — including space formerly occupied by Macy’s and Sears — and building mixed-use areas, with up to 250 apartments and outward-facing retail on the first floor, surrounding an open-area plaza, similar to a town green.

Ten percent of the housing units would be affordable.

Like the Danbury plan, The Post will still contain retail storefronts, but less space should drive down the vacancy rate and help attract higher-profile merchants, especially with an embedded customer base living on-site, the mayor said.

The project is also smartly positioned near other commercial sites, right off the highway and not deep into city neighborhoods, he said.

“My goal was to seek an integration and to create a destination that people know they’re going to want to go to,” Smith said.

Two additional development phases — each with up to 250 apartment units — could also occur, but only if there’s enough demand for more housing, Smith said.

Financial impact, market demand

David B. Sulkis

Milford City Planner David B. Sulkis said the mall’s value, from a tax standpoint, has decreased over a number of years. The property had an appraised value of around $180 million in 2021, down from nearly $212 million in 2017, according to city property records.

Phase one of the redevelopment plan has the potential to increase the mall’s property value by millions of dollars, Smith said, and up to tens of millions if all phases are completed.

The location and its amenities position The Post to be successful as a live, work, play destination, Sulkis said.

“We’re a stone’s throw from New Haven and Fairfield County, not a long train ride to New York. So, it is a very attractive place to live. I think that bodes well for the future development,” he said.

Industry experts agree that outfitting struggling malls with apartments is a smart move to meet existing demand.

Victor W. Nolletti

Victor W. Nolletti, executive managing director of investments for Institutional Property Advisors, a division of Marcus & Millichap, said the Danbury and Milford/Greater New Haven housing markets are vibrant and not oversupplied.

Residents are facing a “pretty significant systemic housing shortage in the country,” particularly in the Northeast, making multifamily construction attractive, he said.

Malls, especially in dense commercial districts like Milford and Danbury, are prime sites for residential development.

“There’s strong demand in both markets for housing. It’s a matter of how it’s executed,” Nolletti said.

Malls are also not configured to compete with, or be transformed into industrial or logistics centers since they weren’t designed for heavy truck traffic and don’t have adequate ceiling heights, Nolletti said.

“I just don’t know how feasible it is to take a former Macy’s and turn it into a high-bay warehouse where you’d get much less rent per foot for a warehouse than you do for a residential apartment,” he said.

Donald Poland

Donald J. Poland, senior vice president of urban planning for East Hartford-based Goman+York Property Advisors, said the Milford and Danbury plans are poised for success partly because the developers are also the owners, an obstacle that other struggling malls and their municipalities have difficulty overcoming.

If 250 units are built in place of empty retail, that creates 250 captive consumers who are likely to shop and dine on-site, he said.

Projects like apartment conversions reduce mall vacancies and make other retailers stronger, Poland added.

“Parts of these malls will almost always remain because there is a market for a portion of that retail, which will become stronger with the residential,” he said.

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