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Circle of Competence Issue #89


"The time to buy is when there's blood in the streets." - Baron Rothschild


The future of the American Mall (CBS h/t Jordan P.)

This CBS story illustrates how the ownership group behind the Mall of America (Triple Five Group) is converting another New Jersey mall into a massive entertainment destination consisting of roughly 50% retail and 50% entertainment. A favorite quote of mine is the contrarian proverb above and there is no doubt that the 'Amazon effect' is exacting it's toll on shopping mall retailers. There seems to be no area more bloodied than brick and mortar retail over the past 5 years. While many current mall owners have languished as the retail industry has been reshaped through ecommerce, this has created opportunities for new and more creative investors to re-purpose the space for a higher return on capital. A few of the adaptive reuse cases that I have studied include the following:

1. Storage facilities (warehousing, traditional storage, and fulfillment)

2. Education campuses (magnet schools, technical schools, etc.)

3. Multifamily (apartment) redevelopment

4. Government centers (city hall)

5. Entertainment center (such as theme park or performing arts center)

6. Coworking spaces

7. Medical centers

It seems to me that investing in a failing mall requires a healthy dose of creativity to re-purpose the asset as well as an above average tolerance for risk. If the mall in the video above is going to be successful, there are a few implicit assumptions that must prove to be correct:

1. Consumers value in-person experiences more than shop