These days, visitors entering the South Philadelphia Shopping Center at 23rd Street and Oregon Avenue are greeted by the blank rear wall of a ShopRite supermarket and a defunct auto center’s empty windows.
But the strip mall’s owner, Cedar Realty Trust, has plans to replace those streetscape-deadening facades with low-rise structures featuring dwellings over ground-floor shopping in an effort to redevelop the property into a 24-hour town center for the Girard Estate neighborhood.
Port Washington, N.Y.-based Cedar Realty Trust is among a growing number of big, publicly traded mall and retail-center owners that are redeveloping their shopping spaces to include housing. The hope is to enliven their properties with round-the-clock activity in an era of store bankruptcies and other setbacks.
It’s a trend that’s set to land hundreds of full-time residents in prominent malls and shopping centers in central Philadelphia and its nearby Pennsylvania suburbs, where land to build housing is otherwise scarce. Residential projects also are envisioned for Suburban Square in Ardmore, the Bala Cynwyd Shopping Center, and the Gallery at Market East in Center City.
“The goal is to have an appealing place to live, work, and play,” said Eli Holden, a research analyst covering real estate trusts for CenterSquare Investment Management in Plymouth Meeting.
Brick-and-mortar retailers continue losing ground to their online peers. E-commerce sales made up 8.5 percent of this country’s total retail transactions during the first three months of 2017, up from 3.2 percent a decade earlier, according to U.S. Census data compiled by the Federal Reserve Bank of St. Louis.
That change in shopping habits has led to massive financial losses, as well, contributing to the bankruptcies of chains including Sports Authority and RadioShack and moves by Macy’s and others to shutter scores of poorly performing stores to cut costs. All that could result in the closure of up to a quarter of the nation’s malls over the next five years, the global bank Credit Suisse forecast in a report released late last month.
By building apartments or condos at their properties, retail-center landlords hope to insulate themselves from that fate, boosting their tenants’ customer bases while generating income for themselves through sale or rental of the dwelling units.
The strategy makes the most sense in dense urban centers and surrounding suburbs, where demand for housing has been straining the supply of available building sites, said Gregory H. Reed, who is working on a plan for apartments at Suburban Square in Ardmore as a vice president with Kimco Realty Corp., the property’s owner.
“Land is getting more and more expensive, and it’s getting more and more difficult to find opportunities to continue to grow,” Reed said.
Complicating matters for the likes of Cedar and Kimco is their status as publicly traded real estate investment trusts. Investors expect such REITs to specialize in particular property types. Hospitality REITs, for example, mostly own hotels, while office REITs concentrate on office buildings.
The REIT that’s best known for completing big mixed-use projects with residential components, Rockville, Md.-based Federal Realty Investment Trust, has been rewarded by Wall Street, with its stock price rising 46 percent to an average $127.88 in May from a decade earlier, according to data compiled by Bloomberg. Over that time, the FTSE NAREIT Retail Property Sector Index, which tracks the performance of Federal and 32 other retail-property owner REITs, fell 20 percent.
But other companies shouldn’t count on similar success, said Jonathan Miniman, a principal with CBRE Clarion Securities in Radnor.
Federal “gets a hall pass because they’ve done it before,” Miniman said. “Other than that, it’s tough to see others do that without getting criticized by investors.”
Privately owned developers have more leeway in pursuing such projects without the same sort of investor scrutiny. These include Washington, D.C.-based Madison Marquette, whose planned Richwood Village retail-and-residential development in Harrison Township, Gloucester County, will include housing for up to 4,000 people, according to its website.
Federal Realty, whose area holdings include the Bala Cynwyd and Wynnewood Shopping Centers in Lower Merion, was among the first to dabble in dwellings, with its Santana Row project in San Jose, Calif. Since the early 2000s, that has grown into a sprawling complex of chain retail and nearly 850 apartment and condo units.
Nothing Federal has announced for the Philadelphia area approaches such a scale, but the company reportedly is planning a six-story apartment building with 87 units at the Lord & Taylor-anchored Bala Cynwyd center. In November, the Lower Merion Board of Commissioners approved tentative plans for the project, which would be built on a section of parking lot at St. Asaph’s Road next to St. Asaph’s Church, the Main Line Times has reported.
Federal Realty spokeswoman Lisa Geiger had no immediate update on plans for the site.
A few miles away at Suburban Square, Kimco, based in New Hyde Park, N.Y., has received approvals for a 158-unit apartment building with ground-floor shopping as part of an expansion of the outdoor mall.
Kimco has built 230 apartment units, with an additional 760 in progress, since beginning its first residential project in 2013 at the Wilde Lake Village Center in Columbia, Md., after closure of the Giant supermarket that had anchored the property, said Reed, the company’s vice president for Mid-Atlantic acquisitions and development.
Kimco also recently acquired the Lincoln Square development project at Broad Street and Washington Avenue in South Philadelphia, which is to feature a Target store and other shops in retail space below 322 rental apartments.
“How it started with us was looking at our existing assets and asking, ‘Where can we add density?’ ” Reed said.
An apartment or condo building may even rise over the former Gallery at Market East as part of its conversion into an outlet shopping complex, Joseph Coradino, chief executive of the property’s owner, Pennsylvania Real Estate Investment Trust, said in an April conference call with analysts.
The residential structure would presumably be built on one or more of the three development “pads” on the Gallery’s roof, each of which could accommodate a 15- to 20-story tower. PREIT spokeswoman Heather Crowell did not respond to an email seeking further details.
Cedar Realty Trust’s project in the Girard Estate neighborhood, meanwhile, involves the rebranding of the Quartermaster Plaza and South Philadelphia Shopping Center it owns along Oregon Avenue into a single one million-square-foot complex it is calling South Quarter Crossing, according to a presentation posted online.
Plans call for 210 dwelling units and about 27,000 square feet of office space over ground-floor retail along both sides of 23rd Street, running about a block north from Oregon, according to the presentation. The ShopRite store that stands at the intersection’s northwest corner would be relocated deeper into the complex as part of the plan.
Cedar’s chief operating officer, Robin Zeigler, said in a conference call with analysts last month that the company has begun “pre-leasing efforts” for the site, which she described as “a mixed-use redevelopment that will be unique to the South Philadelphia market.”
Zeigler, who joined Cedar last year after helping lead Federal’s mixed-use initiatives as an executive there, declined in an email to share additional details about plans for the South Philadelphia site.
CBRE Clarion’s Miniman said that the strengths of the location — just off I-76 and only a few miles from the employment centers of Center City, University City, and the Navy Yard — could make dwelling units there a success, especially if the increased density draws more retailers to the property.
But he cautioned Cedar against going it alone, without a development partner experienced in residential projects, lest its stock price suffer.
“South Philadelphia needs more retail and probably needs better housing as well, so there’s a need there,” Miniman said. “But the market would punish them if they did it themselves.”