business

The $55 million makeover that brought a movie theater and two stories of upscale shops and restaurants to Rosedale Center two years ago has turned out to be a well-timed hedge for the Roseville regional mall.

"It would be very difficult if we were trying to do that today," said Rollin Hunsicker, general manager at Rosedale for property manager Jones Lang LaSalle. "Construction costs have risen, financing is more difficult and some stores have backed off on expanding. The improvements we made better insulate us at a time when the retail market is not quite as strong."

Store closings and reduced expansion plans by retailers are taking a toll on regional malls here and elsewhere. The International Council of Shopping Centers recently released a report that said it expects 144,000 stores to close in 2008. That's up 7 percent from 2007 -- the largest increase in 14 years, the trade group said.

The vacancy rate at Twin Cities area regional malls, which had started falling in 2004, has edged up recently to about 6.3 percent, according to NorthMarq, a Bloomington-based real estate services firm.

The figures go through June 30 and don't account for more recent closings, such as those by PreVu Inc., formerly known as Wilsons Leather.

Higher vacancies can have financial consequences that go beyond the loss of rent from a departing tenant. It may cost more for a mall to attract new tenants to a center that's perceived to be struggling, said Tricia Pitchford, vice president of retail brokerage services at NorthMarq. "Sometimes other tenants' leases may be written so that they will get a rent reduction if the anchors or a percentage of the center is vacant," she added.

Coping until the rebound

No rebound seems likely soon, according to Richard Grones, founder of Cambridge Commercial Realty, an Edina-based firm that specializes in the retail market. He said some malls probably will have more short-term tenants filling space as the holiday sales season approaches. And some might use "bumpbacks" -- small tenants used to fill just the front portions of empty storefronts, he said.

"Malls are working with tenants a lot more than they used to," Grones said. In some cases that means renegotiating leases to retain tenants, or offering concessions to attract new ones, he said.

Longer-term solutions involve looking for nontraditional tenants, Grones said, such as health clinics and financial service businesses. He said the new LA Fitness at Northtown Mall is a good example of the different types of tenants being sought by regional malls.

So-called "club stores" like Costco and Sam's Club have begun showing up in vacant anchor space in regional malls on the West Coast, and it's possible that trend could eventually surface here, Grones said.

"There used to be the idea that you didn't see a shopping cart at a regional mall, but that's starting to change," he said. "People are becoming less resistant to the notion of shopping at a mall for perishables."

Two malls are struggling

Grones and Pitchford each said that Southdale and Brookdale are examples of malls that put off redevelopment and now find themselves struggling. Southdale's owner, Indianapolis-based Simon Properties, and Brookdale's owner, Florida-based Brooks Malls Properties, declined to comment on their malls' performance or redevelopment plans.

The latest blow for Brookdale fell last week with the news that its Steve & Barry's discount apparel store would close. The store opened in 2005, filling space vacated by J.C. Penney. The center has struggled to fill other anchor space vacated by Mervyn's, and a plan to fill that vacancy with a Wal-Mart has been suspended by a legal challenge from Sears, another anchor.

Southdale's vacancy rate was 12.6 percent as of midyear, according to figures compiled by Colliers Turley Martin Tucker. The vacancies include some prime storefronts, including the former Mervyn's and the space formerly occupied by Crate & Barrel in the mall's courtyard. The third-floor food court is more than half empty.

Grones said that in the long run, the strong retail market surrounding Southdale should help it recover. "But in the short term, they may need to make some deals to get tenants," he said.

Malls can't stand still

Paula Mueller, general manager at Northtown Mall in Blaine, said malls must keep reinventing themselves to remain viable. "We can't predict or control what a retailer's plans might be, but you're in a better position if you keep moving ahead on improvements," she said.

In the last couple of years Northtown has attracted a Best Buy, Burlington Coat Factory and a Steve & Barry's to space vacated by Kohl's and Homeplace. Last month, an LA Fitness sports club opened in a spot once occupied by Montgomery Ward.

This week, a Herberger's department store will open at Northtown in the old Mervyn's space. Mueller said the latest changes will boost the mall's occupancy to 99 percent.

The Northtown Steve & Barry's recently survived a round of closings announced by the new owners of the chain. Mueller said that might not have been the case if Northtown had forgone redevelopment.

Susan Feyder • 612-673-1723