Beth Azor, founder and owner of Azor Advisory Services, joined Yahoo Finance Live to discuss the future of shopping malls.
ADAM SHAPIRO: All right, for a lot of us who were kids in the 1980s, names like Dadeland in Miami or Chicago's Water Tower Place, Indianapolis' Circle Center, the mall culture, well, malls, no need to tell you, are about as popular as a '64 Studebaker without air conditioning.
To help us understand what's about to happen in the retail commercial landscape, we bring in Beth Azor, founder and owner of Azor Advisory Services. And what I'm talking about is the commercial real estate landscape, because there was news recently that a large owner of malls, Westfield, is going to sell all their properties. What does that mean, and who's going to buy them?
BETH AZOR: Well, what that means is they're going to sell 28 of their malls in the United States. They're from Canada, and they have a large representation in Europe. And they've just decided that the US is not doing it for them and-- but there's going to be a lot of people that are looking to replace them. We have multifamily residential, health care and logistics, and also corporations. For example, "Fortnite"-- have you heard of it?
ADAM SHAPIRO: Yeah.
BETH AZOR: They just bought a mall 980,000 square feet in Cary, North Carolina for their new corporate headquarters.
SEANA SMITH: Well, so then, Beth, going off of that, it sounds like a lot of these malls are going to be repurposed. We're not going to see maybe a majority of them just left or knocked down. But when it comes to the number of malls that we could see this happen to, what do you think that potentially looks like over the next three, five, seven years?
BETH AZOR: We are predicting that 30% of the current malls in the country-- so there's 1,000 malls right now in the country-- 300 will close in the next three to five years.
ADAM SHAPIRO: So when we talk about that, those malls that I listed at the beginning, Dadeland, I mean, that's a high end mall. That's not going anywhere. But what about-- I mean, I got to live in Cleveland, so Parmatown. I don't even know if it's still open. Those places, those large, huge, run of the mill malls, how do you turn that into real estate? Don't you have to tear it all down and build housing? Or can you repurpose those buildings?
BETH AZOR: So Amazon bought two malls in the Midwest, so-- for logistics. So I think we categorize our malls as A, B, C, and D malls. The C and D malls will be the ones that will be repurposed. For example, Dadeland, right now, we would consider that a B, B plus. Years ago, it was definitely an A, but things have come and outpaced that mall.
But the C and D malls will be the ones on the chopping blocks. Some will definitely be demolished. We have a location in Broward County in the Fort Lauderdale area that Westfield has already given back to the lender. And the Dillard's portion of the mall is being negotiated with a multifamily developer right now. So a portion of it will be redeveloped, and then we'll see what happens with the rest. It will be repurposed, but it may also be demolished for different land opportunities.
SEANA SMITH: Beth, what-- I guess, what qualifies for your A rating? And what are those malls doing that seems to be working right now?
BETH AZOR: So they're doing-- they're bringing in a lot of experiences. They have the tenants that are performing better-- the Nordstrom's, different restaurants. They've created experiences for the families to come. They've done things like slime events. And they have the high end luxury brands. The malls that have Sears and Penney's, which we know are dying retailers, and Macy's, Lord & Taylor, when you don't have an anchor, you're not going to have a mall. So it's the anchors that are driving the success of the A malls, and then also the experiences and the luxury brands.
ADAM SHAPIRO: So is there a future in which people go and kill time on a weekend, walking the mall? I mean, in the '50s, I guess, people used to go have lunch at the department store, the Higbee's in Cleveland, but that's dead. I mean, aren't malls just simply dead? What's the purpose?
BETH AZOR: No, I think there's definitely a gathering. You know, look, Starbucks created the third place, right? There is an opportunity for a third place for tenants and for malls that understand what it will be to drive the consumer, especially in poor weather states. You know, we're here in South Florida so we can be out right now, enjoying the weather. But if you have a great mall with great experiences, I think people will want to go to the third place, as long as it's clean and safe, which is now, following the pandemic, at everyone's top of mind.
But if you have an indoor ice skating rink, if you have the Escape rooms, if you have who-- the Who Done It, the clue games, there are ways to attract consumers to come to the malls. I remember also I bought my first '45 Milwaukee, Wisconsin in the mall, and I hung out at the mall. I think that as long as the mall marketing people invest in ways to bring people to the malls and have experiences, the malls will definitely survive.
ADAM SHAPIRO: You know, I talk about mall culture, useless Ohio trivia. You know that scene in "A Christmas Story" where the evil Santa pushes the kid, the elf, down via the slide? That's a real thing from Halle's and Higbee's, the old department stores in Cleveland, Ohio. And I think they still pull it out every year at the holidays. Beth Azor, founder and owner of Azor Advisory Services, thank you, and please do come back as we look at this evolving situation with commercial real es--