By: John Glover (MBA)

Developers are increasingly turning to a new strategy to revitalize struggling commercial malls: incorporating residential units into these commercial spaces. This innovative approach not only breathes new life into aging properties but can also offer a host of benefits for both businesses and residents alike.

The Advantages of Combing Residential and Commercial Properties

One key advantage of adding residential units to commercial malls is the potential for increased foot traffic and customer base. As residents move in, they become a built-in audience for the shops and services within the mall. This steady stream of potential customers can provide a much-needed boost to businesses operating within the mall, helping to drive sales and sustain growth.

Walkable communities benefit residents and businesses; alleviating the need for a car is a net positive. Imagine a world where almost everything you need is just a short walk from your front door—this is the reality across much of the world. Changing how people approach building communities in New Jersey starts by centering people in the planning process. 

According to developer and General Partner Steven Mann at Propertize Ventures, this idea—known in the architecture space as adaptive reuse—is a favorite among urban planners. “Putting people next to employment centers, commercial amenities, parks and most notably transportation hubs is a hallmark for sound planning principles, especially for the people-centered communities of tomorrow,” Mann says. 

Moreover, integrating residential units introduces a diversification of revenue streams for property owners. With rental income from residential units supplementing traditional retail earnings, malls become less reliant on fluctuating consumer trends and economic conditions. This financial stability can be crucial for long-term viability and success.

Residents also benefit from the enhanced shopping experience offered by living within a commercial mall complex. With retail outlets, dining options, and entertainment venues just steps away, residents enjoy unparalleled convenience and access to amenities. This seamless integration of living and leisure creates vibrant environments that unite people and serve as social anchors for new urban communities.

After years of construction, the American Dream Mall opened its doors in East Rutherford, bringing a mega shopping center to NJ residents. Despite the ample space and opportunity for residential units, the American Dream forwent the option to build a living community on its premises. Over four years later, the mall has yet to turn a profit. In 2022 alone, American Dream Mall posted a net loss of $245 million, according to publicly available EMMA disclosures. This is just one example of the many failing malls that have turned a blind eye to the residential angle—posting negative results. 

According to Mann, residential units could help places like American Dream Mall. Large-scale commercial and office development projects come with a large price tag, and with the changes in the markets, these investments are proving to be less and less viable for developers and banks. The economic uncertainties and current forecasts make financing—or, in many cases, refinancing—these buildouts nearly impossible. Incorporating a residential component gives these existing landscapes and investors a way to reinvent their investments and restructure their financial obligations. 

Maximizing Existing Infrastructure

Adding residential units efficiently uses existing infrastructure and amenities within the mall. Rather than constructing new developments from scratch, developers can leverage existing infrastructure, reducing costs and environmental impact. This repurposing of space fosters the creation of mixed-use developments that cater to diverse needs and preferences.

From an investment perspective, including residential units can significantly increase the property value and attractiveness to investors. The synergy between residential and commercial components creates a multifaceted asset with greater revenue-generating potential. This, in turn, makes the property more appealing to potential buyers and stakeholders, driving up its market value.

Additionally, residential development generates significant property tax revenue, which in turn funds critical infrastructure. According to Mann, as property tax collections from the office sector rapidly decline, municipalities can offset this by adding density to sustain or expand the tax base.

This strategy benefits the state and its residents in more ways than one. According to Alex Dougherty, principal at Dougherty Planning & Development, “Revitalizing retail centers such as malls and even corporate office campuses with elements of residential housing takes full advantage of existing infrastructure as these sites typically have large scale surface or empty parking structures. Sewage, water and vital utilities are already in place, which reduces environmental concerns for communities across the state. The greenest buildings are the ones that don’t head to the landfill.”

Building Better Communities

Beyond financial considerations, integrating residential units fosters community building and social interaction within the mall complex. Residents form bonds with their neighbors and engage in shared activities, creating a sense of belonging and camaraderie. This social cohesion contributes to a vibrant and inclusive community extending beyond the confines of individual living spaces.

For Dougherty, adaptive reuse is a no-brainer: “Planning at the pedestrian level allows us to alleviate the need and historic demand the vehicle has played in our day-to-day lives. Walkability and convenience in today’s world doesn’t necessarily mean it has to come by way of a premium new development project but rather by identifying opportunities in existing architecture and understanding the complex correlations that various land use and zoning schematics play in the successful design and makeup in our communities,” Dougherty says. “We can look at the marketplace and capitalize on its financial shifts, lessening the cost of such developments in the process.” 

However, navigating the complexities of zoning and regulatory requirements is essential when implementing mixed-use developments. Developers must ensure compliance with local ordinances and regulations governing land use and residential construction. Working closely with municipal authorities and stakeholders can mitigate potential obstacles and streamline the development process.

The addition of residential units to commercial malls offers a myriad of benefits for the stakeholders involved. From increased foot traffic and revenue diversification to enhanced shopping experiences and community building, the integration of residential living transforms malls into vibrant hubs of activity and vitality. As developers continue to embrace this innovative approach, the future of mixed-use developments appears promising, heralding a new era of urban living and commerce.

Published by: Martin De Juan