Malls adding apartments to offset dwindling numbers of shoppers

With golden shovels and white hard hats, city leaders and mall executives scooped up clumps of red-brown earth from a metal bin and tossed them into the air, marking the start of construction of a new 309-unit apartment complex on a parking lot at Santa Ana’s MainPlace Mall.

The new Paloma apartments are just the beginning of what mall owners say is a $500 million redevelopment of the 63-year-old marketplace that eventually will include open air courtyards, another apartment building, culinary dining, a music venue and art walks. The owners continue to evaluate the possibility of adding office space and maybe even a grocery store down the road.

The MainPlace redevelopment seeks to revive shopper interest when malls nationwide are shrinking their retail space and adding apartments, hotels, offices and entertainment venues.

“It’s a different landscape (for malls) today. It’s about re-merchandizing to meet the consumer’s need,” said Steven Levin, founder and chief executive for MainPlace managing partner Centennial Real Estate Co. “The shopping is still a part of it. But it’s more food and beverage, its health, wellness and beauty. It’s entertainment.”

• People look at artist renderings for new apartments at MainPlace Mall in Santa Ana, CA on Tuesday, January 25, 2022. The 309-unit Paloma apartment building, right, will be the first addition. Malls around the country are putting unused space to use by adding apartments, hotels, offices and entertainment venues. (Photo by Paul Bersebach, Orange County Register/SCNG)

• Workers install electrical lines at the site of Paloma, new apartments being built at MainPlace Mall in Santa Ana, CA on Tuesday, January 25, 2022. Malls around the country are putting unused space to use by adding apartments, hotels, offices and entertainment venues. The 309-unit Paloma apartment building will be on the current parking lot at the malls southwest corner. (Photo by Paul Bersebach, Orange County Register/SCNG)

• Steven Levin, CEO of mall owner Centennial Real Estate, puts on a hard hat during a groundbreaking for new apartments at MainPlace Mall in Santa Ana, CA on Tuesday, January 25, 2022. Malls around the country are putting unused space to use by adding apartments, hotels, offices and entertainment venues. (Photo by Paul Bersebach, Orange County Register/SCNG)

• With MainPlace Mall in the background work continues on the parking garage for Paloma, new apartments being built at MainPlace Mall in Santa Ana, CA on Tuesday, January 25, 2022. Malls around the country are putting unused space to use by adding apartments, hotels, offices and entertainment venues. The 309-unit Paloma apartment building will be on the current parking lot at the malls southwest corner. (Photo by Paul Bersebach, Orange County Register/SCNG)

• Artist renderings for new apartments are shown at a ground breaking at MainPlace Mall in Santa Ana, CA on Tuesday, January 25, 2022. The 309-unit Paloma apartment building will be the first addition. Malls around the country are putting unused space to use by adding apartments, hotels, offices and entertainment venues. (Photo by Paul Bersebach, Orange County Register/SCNG)

• Guests listen to speakers during a groundbreaking for new apartments at MainPlace Mall in Santa Ana, CA on Tuesday, January 25, 2022. Malls around the country are putting unused space to use by adding apartments, hotels, offices and entertainment venues. The 309-unit Paloma apartment building will be on the current parking lot at the malls southwest corner. (Photo by Paul Bersebach, Orange County Register/SCNG)

• Guests listen to speakers during a groundbreaking for new apartments at MainPlace Mall in Santa Ana, CA on Tuesday, January 25, 2022. Malls around the country are putting unused space to use by adding apartments, hotels, offices and entertainment venues. (Photo by Paul Bersebach, Orange County Register/SCNG)

• Officials shovel dirt during a groundbreaking for new apartments at MainPlace Mall in Santa Ana, CA on Tuesday, January 25, 2022. Malls around the country are putting unused space to use by adding apartments, hotels, offices and entertainment venues. The 309-unit Paloma apartment building will be on the current parking lot at the malls southwest corner. (Photo by Paul Bersebach, Orange County Register/SCNG)

• With MainPlace Mall in the background work continues on the parking garage for Paloma, new apartments being built at MainPlace Mall in Santa Ana, CA on Tuesday, January 25, 2022. Malls around the country are putting unused space to use by adding apartments, hotels, offices and entertainment venues. The 309-unit Paloma apartment building will be on the current parking lot at the malls southwest corner. (Photo by Paul Bersebach, Orange County Register/SCNG)

Retail centers across the nation are being revamped with a mix of residential, office and hotels as older suburban malls struggle against a rising tide of online shopping and try to compete with popular Class A centers and discount outlets, market experts said.

The conversion of mall space into apartments simultaneously solves two problems, reviving dying malls while addressing a housing shortage.

“The non-fortress malls, the B and C malls, they’re having difficulty surviving,” said Scott McPherson, managing partner of Merlone Geier Partners, which is adding apartments to retail centers in Laguna Hills, Buena Park, North Hollywood and other malls in Northern California and the Pacific Northwest.

Malls “have large parking fields, and the buildings cover only 25% of the land,” McPherson said. “So, it’s an easy transition to other uses.”

At least 192 U.S. malls have proposals to add housing, said Georgia Tech Urban Design Professor Ellen Dunham-Jones, who tracks mall redevelopment. At least 33 apartment plans were launched since the pandemic began, in part because of increased online shopping. The pandemic also constrained the supply of new housing just as demand for rentals was increasing since fewer people can afford to buy homes.

“The market has responded by building an enormous amount of housing on mall sites,” Dunham-Jones said.

In addition to MainPlace, at least 10 other Southern California shopping malls either have apartments, are in the process of developing them or are considering residential plans.

Hundreds of apartments already occupy space at Huntington Beach’s Bella Terra and Glendale’s The Americana on Brand. Thousands more are planned at malls from Woodland Hills to Laguna Hills, from Redondo Beach to Studio City, where the iconic Sportsman’s Lodge Hotel is being razed to make way for shops and 520 residences.

MainPlace’s woes follow years of store closures, the most significant of which was the departure of Nordstrom Department Store in 2017. MainPlace had 171 stores as of last June, down from 189 in 2014, data compiled by real estate analytical firm Green Street show.

“It’s a trend we see in a lot of Southern California malls,” said Scott Wild, a senior vice president with Irvine-based John Burns Real Estate Consulting. “If you lose that anchor tenant, it’s a struggle to turn the tide with other leading tenants. It’s those big anchors that draw traffic to the mall. That’s why we see a lot of redevelopment.”

Malls, Wild said, have a lot of infrastructure and lots of parking. At the same time, apartment vacancy rates have shot through the roof in the past year.

“It’s kind of a good solution to take something that’s trending downwards and applying some other solution to another problem,” he said.

Online shopping continues to push brick-and-mortar retail toward the brink. E-commerce sales totaled $612.9 billion during the first three quarters of 2021, up about 16% from the year before, U.S. Census Bureau figures show. E-commerce spending, which has nearly tripled in the past seven years, accounted for 12.7% of total retail in the U.S.

As a result, retail square footage continues to shrink, most noticeably in the larger store sizes, said Temecula-based retail consultant Greg Stoffel.

“There has been more retail than can be supported for several years,” he said. “Weaker centers with any combination of poor access, mediocre demographics, tenant attrition, etc., continue to downsize their retail and look for other uses that can inject much-needed life back into the center.”

It will take about two years before the five-story, 420,000-square-foot Paloma apartments are open for leasing.

The apartments will include efficiencies, one- and two-bedroom units, with an average size of 850 square feet. The amenities include a rooftop deck, separate parking, a clubroom, a screening area and an entertainment kitchen, a pool-spa area, a dog run, a dog spa, a bike storage and repair area and parcel lockers.

The next stage in development will include demolition of an enclosed area, returning MainPlace’s central portion to its open-air roots from the late 1950s. A central plaza stretching from the back to the front of the mall will create an outdoor space for performances, concerts, children’s entertainment and art displays. The food hall also will get an overhaul to provide a more diverse dining experience.

A 400-unit apartment building will rise from the parking lot at the mall’s east entrance along Main Street. Centennial is still working on the plans for future expansion.

Santa Ana leaders embraced the proposed renovations, calling MainPlace an essential part of their community.

“Retail is no longer what retail was three or four years ago, and you are adapting to those changes,” Mayor Vincente Sarmiento said. “We’re all eager to see what the future brings to this site.”

Apartments at Southern California malls:

• Bella Terra, Huntington Beach: The mall has 467 units, built in 2013, according to CoStar.

• The Americana on Brand, Glendale: Has 242 luxury units on the mall’s west side.

• Village at Laguna Hills Mall: Owner Merlone Geier Partners is seeking city approval to build 1,200 to 1,500 apartments, plus a boutique hotel and 390,000 to 520,000 square feet of office space.

• Promenade mall, Woodland Hills: Won city approval in December for a $1 billion project to build 1,432 apartments, a 28-story office tower, two hotels with 572 rooms, and a 10,000-seat entertainment and sports center.

• Baldwin Hills Crenshaw Plaza in South L.A.: New owner Harridge Development Group, which acquired the mall in August, is evaluating a new redevelopment plan that will include “some sort of residential,” a company official said.

• South Bay Galleria, Redondo Beach: The first phase of a redevelopment plan includes a 300-unit apartment building, plus a 150-room boutique hotel, 75,000 square feet of office space, a new plaza and a new open-air retail and dining area. Timing for construction of the apartments has yet to be determined, a spokesman said.

• Buena Park Mall: Merlone Geier Partners acquired the Sears building at the mall and is working with the city to develop a plan that will have a residential component, said Managing Partner Scott McPherson. The initial plan included 1,300 apartments and townhomes, “but that’s subject to change,” he said.

• The Shops at Sportsman’s Lodge, Studio City: Developers transforming the iconic 1960s hotel into a retail center announced in August they plan to raze the last remnants of the hotel and build a mixed-use housing development with 520 apartments units.

• NoHo West, North Hollywood: Apartment developer Trammell Crow plans to build 642 apartments on a part of the parking lot in the mall’s northeast corner it acquired from mall owner Merlone Geier Partners.

• Santa Monica’s Third Street Promenade: A plan developed last year encourages the city to consider rezoning parts of the retail district for housing and hotels among other strategies to revitalize an area that’s seeing rising vacancies in the face of online shopping and the pandemic, according to online news reports.

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