Life or death for SouthShore Mall

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Steven Friederich | The Vidette The exterior of the SouthShore Mall.
Steven Friederich | The Vidette Mall walkers do laps around the empty stretches of mall space.
Steven Friederich | The Vidette Maurices put out its closing signs out in early March and were gone a couple of weeks later. Sears is the only place in the mall to get new clothes now.

When Elma Mayor Dave Osgood talks about going to the mall with his grandchildren, he’s not talking about the SouthShore Mall in Aberdeen. He’s talking about the mall in Olympia.

As much as Osgood wants to support the “Shop the Harbor First” mantra from local Chamber advocates, the shopping opportunities at the SouthShore Mall have simply dwindled up.

“Really, if you live in Elma or McCleary, why would you drive all the way to Aberdeen to shop at a mall where there are no stores?” Osgood said. “That’s been the East County mentality for years. It used to be a good mall. There used to be good stores there, but not so much anymore.”

Mall manager Jamie Walsh concedes it’s just about as hard to convince neighbors that live within blocks of the mall to shop there as it is to get East County people to drive west to Aberdeen, instead of east to Olympia. In fact, she says it’s been one of the biggest challenges in her life to attract not just people, but stores in the mall, which is the only one in the region.

“It’s like life or death for this mall,” Walsh said.

The mall appeared to be on its last legs when mall owner General Growth Properties declared bankruptcy and started selling off some of its less desirable properties, including the SouthShore Mall. A new ownership group out of New York specializing in buying run-down malls purchased the property in August of 2012.

“I really had a lot of hope, but I haven’t seen much actually happen,” Aberdeen Mayor Bill Simpson said.

A glimpse into the leasing records of SouthShore Mall was opened recently when the mall ownership decided to appeal the valuation determination with the Grays Harbor Assessor’s Office. A county appraiser dropped the value of the mall by 10 percent, but mall owners argued it should have been dropped by more than 80 percent. The records show that as stores’ leases have expired or are getting close to expire, they’ve been closing up.

At some point, Walsh acknowledges, there’s not going to be a store left that will want to be at the mall.

“We’re bleeding,” Walsh said. “And we’re trying to stop the bleeding.”

Walsh said that the addition of youth-friendly video game and comic book retailers are geared to attract a younger populace to the mall; along with the regular mall walkers. But with Sears as the only real apparel store left, it’s left a bad taste in many shoppers’ mouths.

“There’s a guy who wants to open an ice skating rink in the mall and is trying to get money to do it,” Walsh said. “There’s a guy who wants to put a skate park in the mall. …. We have clients that come in — I’ve had two real stores that have signed leases — and then they walk away. I’m not sure what’s happening. We’ve been in this holding pattern. The county’s unemployment is a problem. We get the people who have the money in their pockets coming to our mall and that’s it.”

Walsh says if a tenant can’t be found for the old JCPenney site, it might be able to be repurposed as a convention center.

Prior to the sale, the Grays Harbor Assessor’s Office listed two parcels owned by General Growth Properties at the mall address on South Boone Street, with a combined certified value of just over $6 million, which had been assessed in 2009. The 15.5-acre and 8.8-acre parcels include the JCPenney building and the rest of the mall except for Sears. The two one-story buildings were completed in 1981 and the quality was listed as “average” by the assessor. The mall, made up of two parcels, was sold for $1 million. But upon a new appraisal, the county’s commercial appraiser saw the sale as more of a “fire sale” that didn’t necessarily represent the true value of the mall. Appraiser Bill Brown chose to appraise the value of the mall at 90 percent of the previous value, which works out to just shy of $5 million. Higher property values for the mall equated to a higher property tax bill that the mall would have to pay.

“We inherited a mess from General Growth Properties,” Walsh testified before the county’s Board of Equalization during a hearing in Montesano last month. “General Growth was not a very good developer of the mall and not a very good long-distance owner. Local middle management did their best and I think we can all say that local manager Nina Morean was an excellent mall manager given what she had to work with. But General Growth Properties was never proud of this mall and never put anything into this mall other than the very bare minimum to keep the mall open.”

Last year, JCPenney closed. The clothing retailer decided to close the store even though it continued paying rent on it up until last month, according to the records. In recent months, as their leases have expired, Maurice’s clothing store closed, the Christian book store closed, Habitat for Humanity moved its store out of the mall and several smaller stores in the mall, including a furniture store and a gift shop are in the process of closing — all at the end of their leases.

Sears actually owns its own building and parking lot at the mall and just has a lease for easement and access into the mall. That lease expires on Nov. 10, 2015. Simpson, a former division manager at JCPenney before he retired, is among those wondering if Sears might throw in the towel, too. “That’s the big question,” Simpson said.

Most of the other stores, including a used book store and video game outfit that recently re-located to the mall, have leases that expire early next year, according to the records turned over to the county. In all, 22 stores have their leases up by the end of January of 2015. Every store that had its lease expire earlier than that has already left the mall, the records show.

The Bank of the Pacific has the longest lease, going until May of 2018. The movie theater, operated by Coming Attractions, had just renewed its lease a couple months before the mall was sold. That lease now goes until the end of January of 2018.

MONEY MAKER?

Even with all of the expiring leases, it’s not clear how much money the mall is making — or if it’s making any money at all. The owners of the mall declined to release specific financial information to the county, citing privacy reasons. Brown told the Board of Equalization without a look at the mall’s books and without any mall sales to compare the sale to in the region, his only choice was to figure out what the depreciated value of the mall could be with all of its problems. The Board of Equalization recently denied the mall’s appeal, deciding in its opinion that the “cost approach, with a 90 percent depreciated value was the best indicator of the market value.”

“It’s an invasion of the owners’ privacy to look at the books,” Walsh said. Instead, she said the mall should have looked at other depreciated mall properties around the country. She and Stan Sidor, a private commercial appraiser, provided valuations for mall properties from Pennsylvania to Spanaway as indicators for what the mall could be valued at.

But Board of Equalization members noted that those variables really couldn’t be used because they were outside of the area and some of the sales were essentially just for the land — without improvements on them.

Walsh says that the mall plans to appeal the decision to the state Board of Tax Appeals. And, since the county has moved to an annual revaluation process, she says they’ll appeal future revaluation decisions made by the county, too.

“Our main reason for petitioning is to reduce the mall’s taxes to a more manageable level,” Walsh wrote to the county. “Recent and continuing income loss for the mall can only be estimated at this point. … The mall’s ownership is looking for a way to redevelop the mall but first we must resolve our ground lease issue and pay our private lenders back. Annual property taxes of $70,000 a year is too financially burdensome and destabilizing for the mall at this time.”

The issue with the taxes is coming at the same time the state Department of Natural Resources is demanding that the new mall owners start paying more than $100,000 annually to retain a lease for parking at the mall. Although Sears owns its building and parking area, and the mall owns its two parcels and the rear parking lot; the state actually owns the parking lot in front of the old JCPenney’s side.

The records show that the mall was paying $15,000 per month back in 1980. But every five years, it’s gone up exponentially. By 2000, the rent for the parking was $46,048. In 2005, it was $66,798. Today, the mall owners are expected to pay $100,198.

In 2000, records turned over by Walsh show that former mall manager Morean tried to fight the huge increases, but couldn’t get anywhere with the state. The lease “was signed with no options to give it back,” Morean wrote at the time. A corporate vice president for General Growth replied at the time that it made her “cringe to think of paying $100,000 in 10 years for this.”

There had been a question whether the lease was ever assigned to the new owners, Walsh said. But the state is insisting it was and demanding immediate payment.

“It’s not worth $100,000 for a piece of pavement,” Walsh said, who has been taking a closer look at the original lease. “We just received a do or die notice — and if the state doesn’t get payment from us, there could be a lawsuit coming.”

At some point, Walsh half expects the state to construct a giant fence around its corner of the property.

“It’s not like we actually need that parking anyway,” Walsh said. “This is going to be a battle…. Just one more hurdle.”

EMPTY SPACES

The records show that the mall is leasing about 32 percent of its space as of March, with 85,615 square feet of space leased out of 265,780 total leaseable space. Take away the 3,754-square foot community room, which is not always used, and the leasing rate is more likely 30 percent. As a comparison, when the mall was sold in August of 2012, about 45 percent of the space was leased.

A consultant for the city of Aberdeen recommended last week that the city support a move of the movie theater out of the SouthShore Mall to the downtown area as a way to help boost the downtown. Such a move, Walsh said, may very well be the death knell of the mall.

“That was like a casual comment but it would devastate the mall,” Walsh said.

The records show that the theater is renting about 25,000 square feet of space. Without the movie theater, it would leave the mall with just 22 percent of its space leased out.

Coming Attractions founder John C. Schweiger told The Vidette that he knows very well he’s now the mall’s biggest client. The local theater chain was started in Ashland, Ore. and is used to dealing with rural areas, but he says that the SouthShore Mall is one of the weakest areas for the company.

Schweiger was pretty clear that he has no intention of extending his lease with the mall unless he gets a drop in the rent. He said he almost walked away from the mall entirely when General Growth wanted to raise his rent. Instead, they reached terms to keep it the same. Now, he says even that rent is too high for the quality of the mall and the lack of other stores present.

“I’m not going to be extending my lease unless I get a reduction in rent,” he said. “Why do I say that? When I signed my lease with General Growth Properties I signed it with the assurance it would be a robust mall with lots of businesses in there. I’m about the only one left. It’s getting a little lonely out there.”

Schweiger says he has nothing but respect for Morean, the former mall manager who died from cancer, but he felt the upper echelon of General Growth Properties sold him a bill of goods with false promises that they would finally take the steps necessary to improve the mall. And then they sold it — after the lease with the movie theater had already been signed.

“General Growth was looking at doing a major move that would entail knocking down walls and doing demolition of the strip of stores that were right next to the movie theater. And then they sold the mall right after I put in $800,000 in new digital equipment to the theaters. … Without my rent, I don’t believe the mall would survive. I’m not making any money. I’m just hanging on. And I will say manager Jamie Walsh is working extremely hard. I wish I could give her some advice on something to do. … You just make it inexpensive to people to open their business in there and get people starting to come back. You can’t expect a tenant to pay prime rent when you have subprime property.”

Simpson says he has wondered if it would just be cheaper to tear the mall down and see what else would make sense to go there.

“I would hate to see that mall go,” Simpson said. “But maybe it would give the college a chance to extend out but I don’t know if they would do that either. Unless the new owners do something to encourage people into the mall, there’s no sense of having the mall there. And I think moving the movie theater to the downtown area could help revitalize an area that people are willing to spend money on to grow. It could help revitalize our downtown.”

Tear it down?

In February, the mall commissioned the Wool-Zee Company out of Bellingham to do an assessment to figure out just how much money would need to go into the mall to get it back in shape. The estimate found that it would actually be cheaper to tear the whole mall down and build a new one, estimating that the “cost to cure” the mall with a remodel is $41.6 million compared to just demolishing the mall and building it from new again, which would cost about $35 million, though principal estimator Matthew Woolsey writes that “mall management staff has informed me that there are several non-construction related items that could easily close that gap.”

The Feb. 25 cost estimate and opinion were included in the revaluation information looked at by the county.

“It appears that the main structure of the mall, the exterior bearing walls as well as the interior columns and spread footings, are in working condition,” Woolsey wrote. “No buckling columns, shifting foundations or major exterior cracks were witnessed. The waving nature of the mall slab on grade appears to be caused by settling soils beneath nonbearing items. All load bearing items appear to be intact and functioning.”

Woolsey notes that the mall appears to have been “diligently kept up to code requirements.”

“The major damage throughout the mall appears to largely lie in the waving and settling nature of the slab on grade,” the report states. “This issue has caused many, if not most, of the non-load bearing interior partition walls to settle and buckle.”

He makes sure to note that the mall continues to be “safe for inhabitants,” despite the issues with the floors and walls and a few minor areas of leaking and seepage of rainwater.

Woolsey proposed a phase one repair job that he estimated to cost $16.8 million, which would include demolition of the walls, replacing ceiling, floors, new concrete grade beams and new concrete slab on grade; as well as moving the theater into a new space at the front of the building with space for a minor expansion, along with a new food court and new roofing on the entire building.

“We love our theater tenant and want to give them a better space,” Walsh said.

A second phase would include more demolition and repair at $24.8 million, along with fixing the parking area, new landscaping, fixing the building fronts and converting the existing food court and theater into shop space.

Sidor, who works in Tacoma but grew up in Aberdeen, said when he saw those figures, “I gagged a bit — especially for this market. It wouldn’t be that significant for the Seattle-Tacoma area on a price-per-square-foot basis, but when you get down to an area like Aberdeen-Hoquiam-Grays Harbor, then those costs are significant and I have significant concerns whether spending this kind of money is even a realistic or feasible option.”

Walsh, a licensed architect in addition to being the mall manager, said that the mall is “absolutely safe.”

“When I first got there, I was worried because I heard all the stories about the mall,” she added. “I think the SouthShore Mall is a safe building. It does have issues. It does have deferred maintenance and it does have wavy floors.”

The problem, Walsh said, stemmed from construction of the mall from the very beginning. There were “enough friction pilings driven for the structure, but not for the infill. … We have empty buildings in Aberdeen that may be sinking, but are sinking evenly. … We have a building that has survived three earthquakes and Grays Harbor, itself, is using the mall as a safe place. The county believes that if everything else is leveled, there’s a good chance the mall is still standing.”

Walsh says she’s not sure when the repairs could start to be done.

The goal was just to see how big of a hill there was to climb to get the mall fixed. But Schweiger said if something isn’t done by the time the lease is done, the theater very well could be out of there. There’s also a question on if the lease would even be valid until 2018 or if there’s a way to get out of it earlier.

“We signed a lease to be in a mall,” Schweiger said. “If there are no other stores there, is it really a mall? … The current mall management is working extremely hard. I think they’ve got one of the steepest uphill battles ever. I’m concerned about the lifetime left in the mall. … Hopefully, there will be some miracle that will turn things around. I think the mall is struggling. It’s going to take something major to be a real draw and help draw others. It’s all about disposable income. We’re trying to be as economically viable as we can for the community.”