Developers Want Malls to Become Warehouses or Offices. It Is a Slog.

Many developers look at failing malls and envision modern office campuses, bustling warehouses or residential buildings. But some are finding that converting these shopping centers isn’t so easy.

Repurposing a mall is expensive. New owners typically need to shell out hundreds of millions of dollars on construction and labor, developers and brokers say.

Razing and redeveloping a space that spans dozens of football fields is filled with potential land mines. The new investor may own the mall but not the department stores or parcels in the parking lot, which means an owner needs their approval. Owners will also need to seek rezoning and entitlements permits that can take years, during which economic conditions can deteriorate.

Consequently, many recent conversion efforts have gone awry, forcing the owner to sell the property at a discount. In other cases, local government authorities have lost patience and bought the owners out.

Brookfield Property Partners LP has made converting all or part of malls one of its prime real-estate strategies. In 2018, the firm bought the two-thirds of mall operator GGP Inc. it didn’t already own, valuing GGP’s property portfolio at around $15 billion. The acquisition reflected Brookfield’s confidence in the mall-conversion strategy, but the real-estate investor has often struggled to make this approach work.