Southdale may linger in the face-lift waiting room

Here's a clue for anyone who thinks a redevelopment of Southdale will occur anytime soon: The vacant Mervyn's store -- a two-story void that would be a focal point of any makeover -- is now occupied by the decorations committee for the Edina High School senior class party.

As recently as last summer, Southdale's owner, Simon Property Group, was saying it planned to begin a long-awaited redevelopment in 2009 that would finish in 2010. But the Indianapolis-based company has had little to say in recent months as the retail and commercial real estate markets have soured.

Edina City Manager Gordon Hughes said last week that he has had no contact with Simon officials for several months. The city has been watching for signs of a redevelopment at the mall, which it considers the anchor for the commercial area bounded by Hwy. 62, Interstate 494 and France and York Avenues S.

"It's the hole in the doughnut," Hughes said.

In a conference call with Wall Street analysts about two weeks ago, Simon basically erased any hope that Southdale's redevelopment would happen this year. The company didn't mention Southdale specifically, but said it wouldn't do any new developments or major redevelopments in 2009. Simon also said it expects little new retail construction in the United States for years to come.

Simon spokesman Les Morris confirmed last week that Southdale's redevelopment will be delayed indefinitely. He described the high school committee's use of the former Mervyn's as part of a "community outreach program."

Simon, the nation's largest shopping mall owner, hasn't hesitated to sell underperforming properties, including a large mall in Cincinnati recently at a reportedly bargain-basement price.

The company has no such plans for Southdale, which Simon considers a "terrific" asset," Morris said. He said tenants with a combined 20,000 square feet of space will move into the mall this year.

"We continue to focus on its redevelopment potential," Morris said.

Potential aside, area retail experts say the mall's condition is anything but terrific.

"It's sad," said retail consultant Jim McComb. "I hope [Simon] figures out something to bring it back."

Figures compiled by Bloomington-based NorthMarq show Southdale's vacancy rate at 23 percent, compared with vacancies of 1 to 3 percent at most other area regional malls. Only Brookdale Center, with vacancy soon to be around 50 percent when its Macy's closes, is worse off.

Like other malls, Southdale has suffered recently because of the dismal economy that has forced retailers across the country to close stores or prune expansions. In its conference call, Simon said tenant bankruptcies led to more than 500,000 square feet of vacated space at its malls in 2008, compared with about 60,000 square feet in 2007.

But Southdale also has lost tenants that have simply chosen to go elsewhere. Its central courtyard has a large vacancy formerly occupied by Crate & Barrel, which moved to the neighboring Galleria shopping center in 2008. Some of the Crate & Barrel space has been taken by Brookstone, one of three tenants signed last year for a combined 4,774 square feet of Southdale's 1.35 million square feet of space.

Southdale also has failed to land some high-profile tenants in the last couple of years. In 2007, Seattle-based Nordstrom Inc. announced plans to open its second Twin Cities area store, at Ridgedale in 2011. Last year, Neiman Marcus signed a new lease, expiring in 2013, for its downtown Minneapolis store in Gaviidae Common. Southdale was thought to be in the running for both stores.

McComb said Southdale has numerous design flaws that have hurt its efforts to attract major tenants. "Updating it will require a significant capital expenditure," he said.

One reason those shortcomings haven't been corrected is that Southdale has changed hands frequently in recent years, with each successive owner moving on before a major redevelopment could take shape. Simon bought the mall in 2007 when it acquired Arlington, Va.-based Mills Corp., which had failed to deliver on plans to redevelop Southdale after running into financial problems.

McComb said any major redevelopment should include demolishing the former Mervyn's store rather than retrofitting it for new tenants. Mike Sims, principal at the Minnesota office of Mid-America Real Estate Group, agreed. He said Rosedale's recent redevelopment could serve as a model.

The Rosedale project involved tearing down a vacant Mervyn's and replacing it with a two-story addition of upscale shops and restaurants and a 14-screen AMC theater. Southdale has had a 16-screen AMC theater as well as some new restaurants since the mall's last major redevelopment in 2002.

Russ McGinty, an area commercial real estate broker who specializes in retail, said he thinks Simon also should consider tenants that typically aren't found in regional malls. "I could see a high-end grocer there. It could really help drive traffic," he said.

McGinty said that Simon is wise to hold off for now on major redevelopment at Southdale, given the current depressed retail market. Sims and McComb agree.

"So many retailers are cutting back that it makes it almost impossible to line up tenants," McComb said. "You can't be sure they'll actually be in business by the time you're ready to open."

Susan Feyder • 612-673-1723