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Thursday, Mar 28, 2024

Malls Wary for Reopening II

 After almost seven months of mandated closure, indoor malls in Los Angeles County are back in action.But the reopening is bittersweet. For many mall operators and tenants, the pandemic-time shutdown has resulted in a towering backlog of rent payments and a tight consumer market that threatens the brick-and-mortar holiday shopping season.Plus, as the pandemic rages on, some businesses are left wondering how long they’ll be authorized to stay open.At Panorama City Mall, “we are being more cautious about the ramp up,” said Arturo Sneider, chief executive of L.A. property development and management company Primestor, which owns the mall. “We’re still skittish about – are they going to pull this back again?”He said that some of Panorama City Mall’s tenants – a mix of apparel retailers, electronics stores and fast-casual dining anchored by a Walmart and Aldi grocery store, are equally skeptical.

“Our tenants are feeling very vulnerable – should I bother opening and hiring people if I’m going to have to let them go again? It’s very difficult to run a business that way,” Sneider said.Fragile permissionAt the beginning of this month, the L.A. County Department of Public Health allowed indoor shopping malls to reopen at 25 percent capacity. That limit is in accordance with the state’s four-tiered, color-coded risk assessment system. For extra safety, food courts and other common areas were ordered to remain shut to prevent the virus from spreading through crowds.At press time, L.A. County was in Tier 1, or purple, the state’s most restrictive tier, with more than seven reported cases per 100,000 residents each day.

Regulators at the state and county levels could order certain high-risk sectors to close down again if the pandemic surges.It’s a fragile position for business owners, and a familiar one.

Back in June, L.A. County officials revised their “Safer at Home” health order to allow retail businesses, including those inside shopping malls, to resume in-store service with some limitations.  Restrictions then were looser than now. Malls were allowed to open at 50 percent capacity and could reopen food courts as long as they were rearranged to maintain social distancing.Just as malls opened their doors, however, it all came crashing down.Cases spiked, and Gov. Gavin Newsom ordered malls to close again July 13, citing the increased spread of the virus. Another three months of closure followed.

That pump fake resulted in similar hardships for mall tenants as those suffered by restaurants earlier in the summer. Some hired back furloughed employees only to lay them off again, while others invested in store rearrangements they wouldn’t be able to use for more than a few days.Despite the chance history repeats itself, Sneider said about 90 percent of Panorama City Mall’s tenant businesses reopened this month out of necessity.A small handful, though, have gone absent without leave.“We haven’t been able to get a hold of them and confirm with certainty what appears to be a permanent closure. Some of these business owners may have been displaced (because of) COVID-19,” he said. “If we believe a business has abandoned the premises completely and we’ve followed the legal process of notification where we have a notice of belief of abandonment, we would be able take possession of that unit.”He said Primestor’s tenants haven’t been paying rent during the closure, so there’s not much they could do that would warrant eviction proceedings.“I don’t think eviction is the right approach given this environment,” he added. “We do have tenants that are going to open and still be in a position where they are not going to pay rent because they’re so upside down on an annual basis.”Big fishUnibail-Rodamco-Westfield is the largest indoor mall operator in Los Angeles County and one of the region’s largest employers with 24,000 people on its payroll.According to Molly Unger, Westfield’s vice president of shopping center management, the company was frustrated by the inconsistent regulations, but ultimately “we’re taking it as a huge positive. … The malls that just got to reopen are rearing to go.”Westfield has three malls in the Valley region – Westfield Fashion Square in Sherman Oaks, Westfield Topanga and the Village in Woodland Hills and Westfield Valencia Town Center in Santa Clarita.The company has pushed aggressively for malls to reopen, even going so far as to file a lawsuit against L.A. County in September. Shortly after the filing, the county announced its plan to safely allow malls to reopen.Unger said Westfield has been working with tenants on a case-by-case basis on rent arrangements.“We’ve had some permanent closures,” she said, but conceded, “most have been riding out the storm. We’ve only been open a week, so it’s hard for businesses to understand what the financial impact is going to be.”Evidently, not every tenant has been receiving rent relief.

Westfield this month filed a lawsuit in L.A. County Superior Court against apparel retailer Express, which it claimed owes $30 million in missed rent payments across 27 locations throughout the U.S. Fourteen of those stores are in malls in California, including one at Westfield Fashion Square.

Holiday crunchThe holiday shopping season is always crucial for mall tenants, but is especially so in the pandemic economy.A study published by Canadian business platform DealAid.org found that 60 percent of consumers plan to shop in stores during the upcoming holiday season, representing a 31 percent drop from last year.

Also expected to decline is the average amount spent in stores. DealAid predicted a drop of more than 23 percent, from $360 per customer in 2019 to $276 in 2020.For an industry that runs on slim margins, those would be devastating losses, especially if mall landlords expect retailers to begin paying rent in full – not to mention back-rent payments.Sneider said there is a silver lining to the reopening false start in June.“The time we did reopen, as short as it was, did give us some learning lessons about customer behavior, what to watch out for, what to expect,” he said.

One lesson was that tenants at Panorama City Mall are prioritizing online sales with curbside pickup.“Customer behavior has picked that form of shopping.” But with what’s at stake this winter, he said he is worried about some tenants and the future of the shopping center industry.“There comes a point where you’re no longer viable as a business plan,” he said. “If (tenants) shut down again, too many businesses are going to close permanently. Unemployment is going to be significant. Many malls, many of these facilities… it will be just like movie theaters. They’ll be done.” 

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