How long before all sales are final at Crystal Mall?
Waterford — Last Sunday, Crystal Mall's interior was almost as quiet and sparsely populated as its parking lot. Macy’s recently had announced it would be closing its mall location, and placards denoting 25%, 40%, 50%, sometimes 60% off dotted the store — and the clearance sale wasn't scheduled to start until the next day.
Families, couples, solo shoppers and the customary groups of high schoolers meandered around the mall in search of deals or, as some said, in an attempt to prevent boredom.
Many stores in the mall have adopted limited hours since the COVID-19 pandemic began, if not closed entirely, leaving the future of the mall in question.
Simon Property Group, which has owned the mall for decades, is in the process of transferring the title of the mall back to a commercial mortgage trust, in effect “handing over the keys” to lenders who provided a $95 million loan in 2012, according to Melissa Che, a senior director in the commercial mortgage-backed securities group at Fitch Ratings.
Che said Simon owes $83.9 million on the loan, which comes due in June 2022.
Commercial mortgage-backed securities are essentially a pool of loans that are combined and sold to investors. Simon’s Crystal Mall loan is secured by a 518,500-square-foot portion of the 783,300-square-foot mall. The space occupied by Sears, which closed in December 2018, is owned by Seritage Growth Properties. Simon requested “special servicing” of the loan in July, a sign that default was imminent, Moody’s Investors Service reported in December.
The COVID-19 pandemic, which caused malls across the country to temporarily shut down, only added to Crystal Mall’s already dismal fortunes. After opening in 1984, it thrived for a time, eventually anchored by Sears, Macy’s, JCPenney and Filene’s, which occupied the space now filled by Bed, Bath & Beyond and the Christmas Tree Shops. Over the years, the financial crisis of 2007-08, competition from nearby Waterford Commons and Walmart and the public’s migration to online shopping have exacted a heavy toll on mall traffic.
“I come here maybe once a month,” Maggie Padron of East Haddam said last Sunday as she browsed Macy’s. “Sometimes I shop or find a good deal and come back for something else, and maybe come back a couple times in a row when I need something. Some stores that we like, or the kiddos like, have been gone since the beginning of COVID.”
Padron, who has been shopping at the mall for about 15 years, mentioned the influence of online retail, combined with the pandemic, as the mall’s downfall.
“I’m sad and I’m a little mad because it feels like Amazon is taking over everything,” she said. “I like Amazon, don’t get me wrong, we shop there. But at the same time, if I need something now — like yesterday, I needed a cover for my bed, I threw mine out because it had ripped, I’m not pulling that out of the garbage — stores provide when you have certain needs that require immediate attention. I feel like stopping Amazon and just shopping mom and pop shops so we don’t see them all come to an end.”
Alex Degunia of Waterford works at Forever 21 and would rather not lose that gig.
“The other day when I saw Hollister close with no notice, I was kind of upset about that. And now Macy’s!” Degunia said. “A lot of people have jobs here. I have another job, but it would stink to lose this one, since finding a place to work right now is hard.”
Marie Nocera of Ledyard has worked several different jobs at the Crystal Mall since it opened. She recalled how much busier — and better — the mall was in the 1980s and '90s. Now, though, “everything’s online. I shop online, my husband’s an Amazon shopper.”
“I’m going to be sad, Sears was my favorite place. I used to be an employee here for many years, now I’m semi-retired,” she said. “But it’s time, honestly.”
The mall took a big hit when Sears closed in December 2018. As of last March, total mall occupancy was 63%, Fitch Ratings reported in November. Sales of tenants of less than 10,000 square feet had declined to $297 per square foot in 2019, down from $310 in 2018 and $315 when the loan was issued. In a mall like Crystal Mall, such tenants should be generating sales of around $400 per square foot, according to Che of Fitch Ratings.
It will be up to the special servicer, a third party, to work out a strategy for settling Simon's Crystal Mall loan. That could involve stabilizing the property, or liquidating it, whichever preserves the greatest return for the trust. The process could take years, Che said, and ultimately could involve discussions with a developer, say, or public officials.
“We’re modeling a pretty big outsize loss, based on the metrics,” she said. “There have been many distressed mall sales for pennies on the dollar. Some have been converted to mixed use — retail and multifamily (housing) — colleges, universities, call centers, medical facilities. ... When we think of those, it’s after a developer scoops them up.”
The Enfield Square case
It seems likely Crystal Mall will be sold to a buyer or buyers with a plan for repurposing it, according to John Clapp, emeritus professor of real estate at the University of Connecticut.
Clapp highlighted parallels between Crystal Mall and the Enfield Square Mall in north central Connecticut, which has struggled for years, losing such anchors as Sears, JCPenney and Macy’s along the way. In 2015, mall ownership pitched the property as a site for the proposed casino the Mashantucket Pequot and Mohegan tribes had chosen to locate in East Windsor, and town officials later offered the property in an unsuccessful, long-shot bid for Amazon’s North American headquarters.
In 2016, J.P. Morgan Chase foreclosed on the Enfield mall after its ownership defaulted on a loan. In December 2018, Long Island-based Namdar Realty Group bought it at auction. The bidding started at $3.8 million.
“The auction fetched $10.85 million for a property that sold 12 years earlier for $85 million,” Clapp and his co-author, Tingyu Zhou, then a professor at Concordia University, wrote in a 2019 paper titled “Over Retailing and Store Closings — Trouble Ahead for Local Economies, Risk to the National Economy.”
The paper, researched and written more than a year before the COVID-19 pandemic struck, predicted “a retail debacle to come ... during the next economic downturn.”
Since acquiring the Enfield mall, Namdar has subdivided the property and sought to sell parcels to mall tenants, including the lone anchor store, Target, which “has done quite well,” according to Lauren Whitten, Enfield’s director of development services.
The mall remains largely vacant, however, and Namdar has yet to share the details of any plan to redevelop it, she said.
“It might be recreational or educational in nature, and the recreational plan might have a senior housing component,” Whitten said. “But there have been no specifics.”
Clapp said that like the Enfield mall, Crystal Mall could be a candidate for housing development because of its proximity to highways and rail service. “It’s a very short ride from Crystal Mall to the train station,” he said. “It would be quite doable to set up bus service to the train in the case of high-density, workforce housing. Young professionals who might want to live there could get to work.”
“I wonder if Pfizer might be interested” in utilizing the Crystal Mall site, Clapp said.
Waterford First Selectman Rob Brule said he and others in town have been aware of the mall’s struggles, and have been trying to plan for it for months. But the lack of clarity surrounding Crystal Mall’s ownership and its future makes that difficult.
Town Planner Abby Piersall said the town has reached out to its contacts at Simon and Seritage about the mall’s future. The town has not been notified of any official foreclosure.
“With Seritage, there’s been some limited conversation about possibilities for future development, but nothing concrete at all, it’s been kind of idea-based discussions about what may be allowed in the commercial district the mall is in,” Piersall said. “Simon, we have not heard or had a direct conversation about what that future plan would look like. If the interest reverts back to another entity, then we would need to get in touch with that entity to have those conversations.”
'A gateway to Waterford'
Piersall and Brule are hopeful about what the Crystal Mall property may look like in years to come. They both pointed to the Hartford Healthcare facility — replacing the former Toys R Us — coming to town as an example of what Waterford can do with shuttered retail spaces. They expect healthy interest from the development community for the Crystal Mall property based on location.
“If you look at the way that it’s poised as both a gateway to Waterford and as a regional amenity, it’s been incredibly important and a pivotal property for both the town and the area,” Piersall said. “It could be that sweet spot of mixed-use residential opportunities as well as retail and services and trying to find that right balance that’s going to elevate and expand on the kinds of things that have historically been there.”
Both Brule and Piersall are quick to note that they support any existing businesses in the town as long as they’re operating. But, Piersall said, a Crystal Mall closure could be an opportunity to fundamentally reshape the town of Waterford. One of her department’s priorities is diversifying the town’s housing options, for example.
Brule has organized an advisory committee to strategize around the Crystal Mall problem in a way that benefits the region, not just Waterford.
“I thought it was important to organize a committee that consisted of some of our regional partners to get their thoughts and ideas on potential uses for this particular property,” Brule said.
The committee is thus far composed of Piersall; Walton; town attorney Rob Avena; state Rep. Kathleen McCarty, R-Waterford; state Sen. Paul Formica, R-East Lyme; leaders from the Chamber of Commerce of Eastern Connecticut; the Southeastern Connecticut Enterprise Region; the Southeastern Connecticut Council of Governments; AdvanceCT and the state Department of Economic and Community Development.
Vacancy nuisance law
In repurposing a mall, the trick is to pursue solutions that are long lasting, which requires a thorough understanding of local needs, Clapp said. Retail outlets can linger, sustained by low rents and tax breaks, while empty mall spaces can eventually become blighted.
Clapp, in his 2019 paper, cites the case of Regency Mall in Augusta, Ga., “an early example of what might lie ahead for 10% to 20% of US shopping districts.” The mall opened in 1978, faced immediate competition from another mall and lost its anchor stores over the next 20 years.
“Shortly after Montgomery Ward went bankrupt in 2001, most of the mall closed. Vandalism and fires occurred at the site, and the surrounding neighborhood declined,” the paper says. “The site remains largely vacant today, despite several efforts to find alternative uses.”
Clapp advocates the adoption of a “vacancy nuisance law” that would require the owner of a large, vacant commercial space to sell or redevelop it within a specified period, say two to three years. In the absence of such a law, a crippled mall space can “limp along” for a considerable amount of time, hurting a community’s tax base and its ability to create jobs, he said.
Waterford Finance Director Kim Allen and Tax Assessor Paige Walton said the town’s tax base will not be affected in the current fiscal year.
“Real estate will continue to be paid in the coming year as well,” Allen said. “I think there may be some impact to personal property as stores leave, but for this current fiscal year, I don’t see any negative impact.”
Walton and Allen said they’re waiting for the situation to develop before estimating the hit to the tax base if property taxes ceased coming in for the Crystal Mall site. The mall is the third-largest taxpayer in Waterford.
“There is a vibrant economy in Waterford beyond just the mall, and I think it’s important not to characterize the town as entirely dependent on this one contributor to its tax base,” Piersall said. “The town is working on partnering with a wide range of developers on a broad number of properties to help offset a possible loss, but the sun doesn’t rise and set on the Crystal Mall.”