Zombie malls and other retail centers getting extreme makeovers to keep up with the times

Denise Richardson took her kids to Spring Hill Mall in West Dundee, Illinois, so often that at Christmas time, the Santa Claus there recognized them by name. She remembers when department stores moved out of Elgin, then a city of 64,000 people in the exurbs of Chicago, to the mall when it opened in 1980, and it was the place to be.

But the mall closed last month, the victim of trends that have been reshaping retail for years. Online shopping. The growth of so-called lifestyle centers in new growth corridors. The COVID-19 pandemic and working from home.

Richardson, who was general manager of the mall, hates to see it go. But as a trustee for the village of Carpentersville, Illinois, where part of the mall lies, she accepted its fate.

“I fought for this mall,” she said. “It’s a beautiful mall. But things happen for a reason.”

Stratford Square in west suburban Bloomingdale, Illinois, also is set to close this month. Like Spring Hill, it was a zombie mall, lurching along with progressively fewer stores and customers, until it was an empty shell of itself.

In both cases, villages took the extraordinary step of buying the malls, with plans to bulldoze the sites and start anew. Those are the most extreme cases, but across Chicago’s suburbs, at centers such as Westfield Old Orchard, Northbrook Court, and Chicago Ridge, managers are trying to replace closed department stores and reinvent the retail experience.

Nationwide, the number of malls declined about 17% per year from 2017 to 2022 and many more are expected to close in the next 10 years, according to a report by Capitol One bank.

“Malls are no longer seen as desirable places for retailers,” the analysis found, reporting that mall vacancies are three times higher than for general retail.

But managers believe they can save malls with makeovers that often involve adding entertainment and dining, with a new twist: making malls a place where people cannot just shop, but live.

Builders have built or plan to add hundreds of apartments at malls in various Chicago suburbs. The idea is that residents will have an affordable home with quick access to shopping, restaurants, gyms and things to do, while municipalities will get increased property taxes.

The target audience for these developments often is young single workers, new families, or older empty nesters who want convenience and flexibility.

Mark Hunter, who leads the mall and large-format retail team for real estate investment firm CBRE, says malls that have kept anchor stores and high-end tenants are doing well.

Retail was overbuilt through the 1990s, he said, but new development and vacancies are now at low points, helping to rebalance supply and demand. New owners who’ve bought malls at lower prices can now afford to reinvest since in most cases, the returns meet their expectations.

“The death of the mall is over-exaggerated,” he said.

At Old Orchard in Skokie, Illinois, owner Unibail-Rodamco-Westfield has brought on residential developer Focus to build 400 homes on top of new retail stores. Focus already built 300 apartments at Hawthorn mall in Vernon Hills, Illinois, and 300 units at Fox Valley Mall in Aurora, Illinois, with a second phase under construction.

Developers like malls because they have high visibility, good road access, and existing infrastructure to attract tenants, with support from municipalities looking to replace lost tax revenue. There’s typically less of the not-in-my-backyard opposition found with developments elsewhere, because the sites already have the traffic that comes with commercial uses, and are set back far from current homeowners.

“We can create an urban lifestyle with the walkability of a city,” Focus CEO Tim Anderson said. “We can mix in a medical office, theater, restaurants, and health club, so you create a live-work-play environment.”

Not all malls are fading. Higher-end regional malls such as Woodfield and Oak Brook generally have maintained enough critical mass to do much better. They are updating by adding entertainment, such as Oak Brook’s new Wonderverse, an immersive experience that puts customers into the role of movies such as “Ghostbusters” or “Jumanji.” Woodfield recently added several new retailers and restaurants, and opened Velocity Esports, an arcade and electronic sports lounge.

A real estate investment firm recently bought Chicago Ridge Mall, with promises for “substantial” spending to upgrade the site. The mall also has attracted newer anchor tenants, including Dick’s Sporting Goods and Burlington Coat Factory.

Chicago Ridge was one of four area malls that Starwood Capital Group or its lenders had to give up after running into trouble making payments on their loans, The Real Deal reported. The other sites, Louis Joliet Mall, the Promenade at Bolingbrook, and the Arboretum of South Barrington, were sold, some for about half their previous price.

In West Dundee, village officials say they were forced to buy Spring Hill Mall after it became largely vacant, with no prospects for recovery.

The village has committed $10 million to buy most of the property from Kohan Retail Investment Group, with the sale to close this month, Village Manager Joe Cavallaro said.

The village plans to hire an engineering firm to demolish the mall, except for Kohl’s and a movie theater, which will remain. With public hearings and guidance from consulting firm AECOM, the village will draw up a concept plan to redevelop the 100 acres, likely with mixed uses including apartments or condominiums, office, commercial, and public uses such as a library branch or municipal facilities. The buildout could take a decade or more.

To pay for all that, the village issued $20 million in bonds, to be repaid by property taxes from a Tax Increment Financing district it created in the surrounding retail and industrial area.

The village worked with the previous owner to try to save the mall with a $40 million investment in 2017, but it didn’t pan out. As anchors such as Sears and Macy’s left, the owner didn’t attract replacements.

In neighboring Carpentersville, where the Kohl’s store in the mall will remain in business, Village Board members decided it wasn’t a good idea to buy distressed properties.

“Essentially the decision was philosophical,” Village Manager John O’Sullivan said. “It wasn’t the role of government to be in real estate unless you had a clear identifiable developer. We wish West Dundee well, it’s just not for us.”

Bloomingdale officials faced a similar scenario with Stratford Square, which once brought in $20 million a year in sales tax, but now is mostly empty. The village bought the mall this year for almost $9 million after filing for condemnation against the owner, Namdar Realty Group, as the property fell into disuse.

“The village felt compelled to promote the redevelopment of the mall rather than just waiting for a property owner showing no interest in reinvesting in the community,” Village Manager Pietro Scalera said.

The village conducted a survey of residents and is working with Teska Associates Inc. to develop two concept plans.

Both plans call for town homes, multi-unit residential, office, commercial, surrounding a central green space, restaurants and entertainment, modeled in part on The Glen Town Center in Glenview. Pedestrian supportive development could include wider sidewalks, benches and a cluster of attractions to walk to in a short distance.

“This is a legacy project right in the middle of our community,” Scalera said. “It’s been an important economic engine for so many years. We want to replace it with something sustainable that will add value to our community and make it a destination.”

At Spring Hill Mall, the last tenants, some of whom had just remodeled and moved in, packed up before moving out. Mall walkers took their last steps in the mall, lamenting the loss of the children’s train that ran through the halls, the skylit atrium and synchronized water fountains.

“Keep it the way it is,” Mitzi Bratthauer said. “Don’t knock it down. Use it for something. It’s beautiful.”

At Super Bounce, where kids giggled as they jumped on inflated playhouses, manager Jessica Olvera fondly recalled seeing children come to play over the years.

“It was so nice to watch all the little kids grow up,” she said. “We’re sad to see it go.”