The explosion of e-commerce, especially during the 2020 pandemic, has greatly altered the retail real estate landscape. It has impacted development and site selection patterns, but it's also having an enormous effect on current retail centers like shopping malls. What used to be a hub of youth and vitality is struggling to stay relevant -- and occupied. Nate Green and Dave Robinson of the Montrose Group LLC sit down with Jason Kester of Agracel, Inc., to discuss how shopping mall sites can adapt to these rapidly changing retail trends.
Note: This transcript was automatically generated and may have misspellings, typos, improper punctuation, or gibberish within the actual transcription. The transcript has not been edited for accuracy and is meant to serve as a guide to the podcast itself.
Dave Robinson 0:01
Well, we're back. Welcome back. Welcome back.
Nate Green 0:09
I'm not sure that we needed that. I'm not sure that was really...
Dave Robinson 0:12
Any show with Vinnie Barberino in it. And of course Horshack. So, you know what? It's been a while. And I'm I don't know whether to blame Nate. I don't know whether to blame the economy. But we've been so darn busy. We have not. We haven't had a podcast in a while on our you know, and we've got some complaints from our, you know, massive on loyal, loyal lis loyal following.
Nate Green 0:40
But just like, you know, at least two people,
Dave Robinson 0:43
let's put not, let's not put numbers on it. Oh, okay. So this is, we're back with the development debate podcast, we have the great Jason Kester with us, the king of Agracel.
Jason Kester 0:55
Thank you.
Dave Robinson 0:57
And we are going to chat about, I think, a really cool topic. And that's redevelopment of mall sites, what I would tend to call, you know, Greenfield, mall sites. And, you know, really, it's a big topic, because of the massive changes going on in the retail sector. You know, the the data is just simply incredible. Other reports indicate that consumers spent $861 billion online with us merchants in 2020. That is up 44%. You know, much like the COVID 15. With you know, you know, I know, Nate didn't get any weight. But But I may have,
Nate Green 1:49
certainly didn't, and I did and then I decided I had to lose it. I mean, you know, I wasn't, it wasn't good.
Dave Robinson 1:55
And then, you know, it's really just just kind of put gasoline on the fire of this e commerce trend. It's actually triple the, the rate of 15.1% in in 2019. So it is, it's big. It is, you know, I think, very much impacting development and site selection patterns, it's, obviously we've been doing, what we've been doing a lot of industrial development work are driven by logistics facilities, driven by e commerce, of course, at the end of the day. But the other reality is, is, you know, big changes in the other side of that market, that that the retail piece, and, you know, quite frankly, the big, big, beautiful indoor malls that my generation grew up, going to, and this is the places that you know, that we hung out in high school. You know, they're dying. And the question is, what are they going to become? And that's, that is what we are going to discuss today. So, you know, Nate is, you know, he's got a, he's got, like, 311 questions for Jason. I don't know, like, this is a deposition for me.
Nate Green 3:17
I wanted to be thorough, okay. I wanted to be thorough with Well, since we had the man Jason Kester, I mean, not everybody gets this opportunity. Let's just be clear about that. Not everybody gets this opportunity. So no, no, but Jason, thanks for Thanks for joining us, we really appreciate it. You know, you've you've had a couple couple, three years, I think at Agracel, and you've got a lot of economic development experience. And it we're really, you know, honored to have you on the podcast, as I think that your experience with Agracel is really, it's, it's, it's been great. And it's been valuable. And I think for anybody listening to our podcast, it's a big deal. And, you know, it really helps inform them what their what they want to do in their communities, potentially. So let's just start out, Jason, why don't you Why don't you talk a little bit about yourself, give us your background, talk about Agracel, and you know what you guys do and then we'll get into my 311 questions.
Jason Kester 4:16
Cool. Hey, thanks, Nate. Yeah, Jason caster. I'm the Regional Director for Agracel our office here in Columbus, Ohio. We've got five offices around the country. I kind of handle the Ohio and contiguous states, kind of area for Agracel. But we're an industrial developer. We help companies build and develop new industrial sites. We will go in sometimes and rehab former sites. We're not a construction company. We just are a developer that brings, you know, funding with us. Typically, we do these things. We then lease them to the tenants for five years or 10 years, some sort of long term lease. We're also pretty active in the capital markets where we go in and acquire a lot of your industrial facilities around the country or are already least and there's a big buy and sell and trade of those those leases. But a little bit about me so i was the might kind of my economic development experience i've been with agracel for about three years now prior to that i was briefly at at JobsOhio like nate. i also spent some time being a local economic development director of my hometown which i would never recommend to anyone
Nate Green 5:23
going back to your hometown or being a local economic development director
Jason Kester 5:26
either
Nate Green 5:27
oh okay okay i just want to be clear
Jason Kester 5:29
Either. i think that's the thing the top of my twitter says you know what's the thing that almost killed you and i quote tweeted that and said being the local economic development director in my hometown
Dave Robinson 5:42
well you know what they say can never go home again
Jason Kester 5:45
you can never go home again and sometimes after being the economic development director you can't go back the i also spent i also spent about a year in afghanistan prior to that doing a little bit of everything but part of that was community development. my first actual economic development community development project i worked on was building a kind of a career and technical center in mazar sharif afghanistan and helping kids get enrolled to make shoes do selling do some kind of low skill basic tasks that they would have a task and they kind of partner with an orphanage to build a workforce development center for the orphans they'd have a skill whenever they matriculated out of out of the orphanage in afghanistan but we had to run water lines and deal with basically zoning and you know the zoning issue there was you know blast proofing the building so it's a little bit different but still still generally the same infrastructure and workforce that (inaudible)
Nate Green 6:39
right. around the world it's all the same that's interesting i you know i think you've you've told this story before jason but it's always interesting to hear because it's it's unique and it gives you kind of an international perspective you know on how things how things work either
Dave Robinson 6:54
i thought you were fighting the communists in afghanistan
Jason Kester 6:57
we were
Dave Robinson 6:58
was that a different war
Jason Kester 6:59
for sure they actually did a study they did a study right as i was the state department of the united states did a study a survey of afghans right before i left 3% knew what 911 was and why the us was there and this was in 2012, 11 years later and 40% of afghans thought we were part of the russian military that had come back so are you know when you talk about marketing and imaging getting the right message out to get support for your programs and your community we have not done that and that is part of economic development
Dave Robinson 7:31
Seems like we should have got some ads on tv or something
Nate Green 7:33
yeah i mean you would think that we'd have a good ad campaign or something you know good pr campaign that's that's the right well hey so let's let's get into talking about grayfield malls you know aging malls whatever it is i think you know jason you've you've been Agracel has been looking at these more recently and how to redevelop them i guess kind of two questions for you one why have you all decided to start down that path and then i guess if you could just talk about from your experience what issues you've run into the advantages that you've seen in those markets or in those malls i think it would be really helpful to understand
Unknown Speaker 8:16
yes so corporately agracel tries to focus on kind of medium to smaller size communities so everything from you know let's say a community the size that toledo down to doing a project in and you know rural eastern southeastern ohio that doesn't have cell phone service you know anywhere around the buildings we typically try to stay in medium to smaller sized communities but here lately in the last really since the start of the pandemic probably from the last year or so i've seen a number of opportunities come along where either manufacturing or distribution was looking to locate maybe closer to an urban center or a town center to get closer to workforce get closer to an oem something of that nature we've just had some opportunities lately so i've started kind of going down that path i vaguely have some understanding of working on some projects at jobs ohio some of you know our favorite online retailer some of what their requirements were just kind of sitting in some of those meetings and hearing some some horror stories from those from from groups that worked on them but yes we just kind of started exploring it just to try to get more knowledge more understanding of it's i think it's going to be something that might be important you know in the future
Nate Green 9:29
absolutely what's uh you know as you started to look at these sites and i know that you're you've looked at several of them and i don't know if you've you've actually taken you know taken control of any of them but you know what kind of what kind of issues have you seen have you run into as you're looking at those sites
Jason Kester 9:44
yeah so the biggest thing that i've learned and this was actually something i learned at jobs ohio it's been reinforced here at agracel is that a lot of times there's some very complex easement and ownership issues with these sites so something i never really I understood was that let's say you have a mall and you have elder Biermann and Sears and JC Penney's, kind of as your anchor tenants. A lot of times those those those wings of the mall may have been developed by separate developers, especially if the mall is older and has changed hands there may be some sort of property division among those different wings of the mall. You know, parking lot A may be owned by tenant C, C's parking lot may be owned by A. there's all kinds of strange utility easements and accesses cutting across everyone's properties yet remember, everybody has an access easement. So you can walk from each individual part of the mall to the other, typically, those kind of converge at the food court. All of those were great when the mall is up and running. But what you run into is when you start trying to redevelop the site, you have to meet the demands, and make happy all those people that control those various easements. So if you have utility easement, even though it's one giant site, if it goes across three different four different owners properties, most of the utility companies look at that as four different projects. So as you're working through that normally tedious and slow process to get them to deal with their easement issues or extinguish those easements, they're looking at it not as one project, but as four, you may have one owner that wants a certain value for his property or her property, and someone else wants a different value for their property. So this it gets real complex and the surveys and the easements, extinguishing those, the title work can sometimes be very costly and very complicated. You know, another issue that I run into is obviously, Brownfield and environmental issues. so you really got to understand what those are, you wouldn't think there would be many. But there always are, whether it's from the food court, or from shipping or from just cars parking there over, you know, 30 or 40 years, you're going to have some Brownfield issues. Another issue, if you're looking at it for some sort of industrial warehousing, something along that line, redevelopment, while a lot of the malls are dying off, a lot of the outparcels are still doing all right. You know, if you think about the old mall, you know, maybe the Applebee's or the Taco Bell, or the sport clips, or whatever that's in the kind of the outparcels around the mall are still, you know, thriving and doing what they're supposed to be doing. So does it make sense to introduce truck traffic into that situation where there's people walking around where there's cars, you know, if you think back to your various site selection and site certification or authentication programs that, you know, you don't want to have incompatible uses. You don't want to have pedestrians, dogs and cats, farm animals, etc. near where you're going to have semi trucks. So it doesn't make sense to have semi trucks coming and going, you know, past Applebee's and the sport clips. It may or may not it depends on a bunch of other factors we'll talk about here in a second.
Nate Green 12:47
Yeah.
Dave Robinson 12:48
I tell you another thing that I've that I've seen with these malls isn't just the easements. But it's, it's these leases that were drafted in the 50s, when the anchor tenants in essence, the Sears the JC Penney, Lazarus, whoever it was, that was one of the huge stores in the mall. One, they were given incredible power, you know, that they still have. Second, a lot of these stores, they own they own the store, they own the land. So you may have this notion, you may see this kind of dead mall, it's completely closed. And you may think, oh, I've just got to go talk to landowner x. The reality is you got to talk to a landowner x. But then more importantly, you have to find someone at Sears that cares. And, you know, we've been through this with a client trying to redevelop a mall site, it's not that easy sometimes to find someone that cares about, you know, basically an asset that's just, that's just sitting there and it. It can really make, you know, moving quickly, very, very difficult. Yeah.
Jason Kester 14:04
Yeah, there's, I've seen some leases where, you know, the anchor tenants have a right of first refusal on blocking anyone that comes in to do an adjacent land use or land ownership, they have a right of first refusal to acquire if a tenant goes out. Yeah, and as Dave mentioned, even if it's not serious, almost all of the people that are buying up, these malls are not local to the Midwest. They're typically out of New York, or typically out of the West Coast. So, you know, even if you're dealing with a non large corporation, it's normally an out of town landowner who may or may not be super motivated to cooperate or sell their easement or sell their piece of property.
Nate Green 14:42
Yeah. Which is interesting. I think that makes it hard. And I think it makes it you know, it's obviously comes with its own with its own kinds of challenges and, you know, makes things difficult. So, you know, Jason talking through the just the issues you come up with when you're dealing with these sites, I mean, they're I think there's there's obviously A lot of advantages, because we've seen I mean, just different entities. I mean, you mentioned Amazon, but there's obviously others. But, you know, when you look at these sites like what, beyond those issues which we have to overcome, because they're, you know, they're their legacy sites for lack of a better word, what are the big advantages you see to these sites, as you as you look at them,
Jason Kester 15:21
yes, I mean, I think some of the key issues are, most of these sites are on most of these buildings and malls are on sites that obviously are already connected your utilities. So you're already hooked up, you know, what, what, what the impacts are, you know, how much flows there, you know, what the electricity is, you know, if you demolish a mall, you're gonna have, you know, a site, it's already got a paved parking lot that's already been packed down, it's already been built on. So you know, a lot of your site development on Greenfield calls can be mitigated, because you're gonna have a site that's already pretty much (inaudible) infrastructure, and, you know, development-wise. You know, another thing you're going to run into is, I hadn't really thought about this till a project we were working on recently is, the benefit to a mall is most the time it was built around a community, right, or the community grew up around it. So you're going to have the ability to have access to a workforce that maybe a little bit different than you will on some Greenfield sites on (inaudible) account, you're going to have mature transportation options, whether that's bus, cab, Uber, you're going to be in town, typically, the malls and most of the Midwest part of the United States in the southeast kind of grew up around the big factory in town. So you know, the mall normally kind of grew up around that. So if you're looking to supply that big manufacturer, the mall site is probably going to be within 5-10 minutes of the big factory that it grew up to the community that worked there went to the mall and bought their goods and services. So you're going to be able to maybe cut down on those transportation cost for the supplier if you can co locate them close to where close to where the manufacturer is, you know, really the workforce has been something that has really come up a lot lately and a project we've been working on just the access to maybe a bigger community with that robust transportation infrastructure, because you know, someone's able to ride a bus, there's always bus line, pretty much every mall, if you drive around and look at it, pretty much any public transportation has to stop there. So if you have the ability to already have that public transportation network set up, where those folks can come in ride a bus, there was established networks, it gives you access to a little bit different workforce, and maybe you won't find in a new Greenfield industrial park for our, you know, 20 minutes outside of town.
Nate Green 17:35
Yeah. And I totally agree, Jason, I think that that, you know, there's a lot of reasons why these are these, you know, these malls make sense for redevelopment. I think that's also why we're seeing some other just brownfield sites and cities, come back on the market and have, you know, have success because all those things you talked about,
Jason Kester 17:54
I would say that when I forgot to was just your construction costs, I mean, if anybody follows me on LinkedIn, I've been posting about it pretty vociferously lately, but steel costs construction materials costs are going cuckoo for Cocoa Puffs right now, kind of a kind of a combo of things from demand, the tariffs that have been imposed in steel market, and then shut downs and a lot of your manufacturing kind of through the fall and early winter. We're kind of coming into that, that dip. So we're just have a lot of things converging, but you know, project we're working on right now steel cost every 30 days goes up about 5%. Yeah, so a lot of times these upfits of these walls, ceiling heights might be a problem. The upside of these existing facilities may be you know, still be cheaper.
Nate Green 18:41
Are you going in Jason and actually using the existing mall or you tearing them down and putting up new buildings? I mean, what's your there's a little bit of both
Jason Kester 18:51
the couple of projects that I've looked at recently, one is a complete tear down, there's a pad so it'd be looking at a completely new upfit construction. The other project we looked at or that I was looking at as sort of a combo utilizing part of the mall infrastructure maybe it's like an office component or kind of in between kind of space and then at the mall with new construction to meet the meet the ceiling heights and some of the construction standards you want for kind of warehousing and distribution and kind of today's market.
Nate Green 19:28
Yeah, okay. Cool. And I Yeah, that makes that makes a lot of sense. We, you know, we've mentioned Amazon but they obviously aren't the only game in town, what other what other companies maybe not companies in particular, but industries or sectors are you seeing that are going into these spaces?
Jason Kester 19:47
Yes. So you know, typically, you know, your your major food and auto OEMs you know, want their suppliers to be close by whether that's, you know, A lot of times there's an agreement where from the supplier into the OEM, the OEM pays that freight. Right. So the closer you get the cheaper the costs for the OEM. So that's the kind of manufacturing projects that that I've seen going on these sites, obviously trucking logistics, warehousing distribution, if you're kind of following along with some of the NAIOP or SIOR the kind of the broker magazines, you know, they're starting to see a lot of thought of cold storage redevelopment, as we're shifting, you know, to get Get Products closer. So, pretty much
Nate Green 20:32
that's a good point. And you're right, it's cold storage is I mean, that's a that's a growing market, I think especially. Well, I mean, just with everything, it's kind of in the e commerce vein, but I think that's a that's a bigger, you know, people want things closer to them, because they want right away.
Jason Kester 20:45
Yeah, most of them all sites have pretty decent power and cold storage, obviously, as a large power consumer. Yeah, you can get, you know, right into a urban center near you know, where you're going to be distributed into grocery stores already have a pretty robust electric network, and, you know, go right now. So
Nate Green 21:04
yeah, you don't need it. Yeah, there's not a lot. Well, you have to obviously retrofit, you know, maybe some of the electric and maybe the utilities, but at least it's there. It's not, it's not as costly as having to bring it from a mile away or something like that. You may have to redo it.
Jason Kester 21:17
For sure. There's, there's always there's always expensive upgrades. But the other thing I've seen just here close to where I'm sitting at my house is here in Columbus is kind of redevelopment of mall sites into, you know, multifamily apartment style. You know, housing options. Yeah, pretty much. You know, before a year and a half ago, I'd never heard a local video talking about having to target housing, but it seems like every economic development entity I talked to these days is having to do some sort of housing study or understanding the need for housing. But a lot of times, these sites are great, because they're already next to you know, maybe you don't want to live across the street from the sport clips, but typically, you do some sort of mixed use or apartment redevelopment, you can kind of screen some of that off, and you're good to go for housing project.
Nate Green 22:02
Well, absolutely. And, you know, every community, I mean, it doesn't really matter if you're in Grove City, you're in downtown Columbus, you're in Athens. You know, they need housing, they have a they have a lack of housing, they have a lack of most of them. The unfortunate part is have a lack of like in those mixed, you know, multifamily places mixed use a lot of them just they lack newer, newer options, that people you know, that people want to live in and and professionals want to live and I think that's a that's a good point, Jason, because that's a not only mixed use, and we you don't see it on brownfield sites, but you know, single families as a need everywhere you go to but but that's a good point.
Jason Kester 22:42
Well, there's a up on the city site up in Flint, Michigan, there is an absolutely beautiful, right, just north of downtown. They've redeveloped some of that park into like 10 and five and 10 acre 1500- 1,000 square foot buildings, and then right near that on the brownfield site, they have an absolutely beautiful, single family redevelopment on the the old Buick City site. It's
Nate Green
no kidding? That's interesting, but that must have been a huge site. Is it a big site?
Jason Kester
Um, yeah, one point time, there's like 20 or 30,000 people work there. And it was three or four years it was the largest GM plan. But if anyone's ever, you know, I know Flint gets kind of a bad rap somehow. They've done a really nice job with the redevelopment of their downtown. And if you go north out of town, or there's University of Michigan campus, that's a nice little business park and then done a really good job redeveloping some single family housing right, right outside of downtown, all new build professional well. They did a good job with kind of some Earth mounds and trees and things kind of screening. It all kind of made its own little neighborhood.
Nate Green 23:46
Yeah, that's pretty neat. that's a that's a great adaptive reuse. Well, I'll tell you, I got I've got I think we've got two more questions for your testing for before we wrap things up. The first one is, you know, you deal with economic development professionals all the time. You are one you have been one and what advice do you have for economic development professionals with you know, if they have aging aging malls in their communities?
Jason Kester 24:11
Yeah, so a couple things I you know, make sure you understand what those environmental kind of like what Dave talked about with you know, the ownership like it's, it's something we're gonna have to deal with serious corporate, you know, understand those easement issues, you know, whether that's getting with a firm some type of environmental work or surveying firm and kind of working through kind of what those issues are put a price on the cost to remedy those, you know, because basically, at the end of the day companies, one thing I've learned that being an Agracel, it's all about return on investment and what the dollar cost is, what's the pricing competitive advantage to the site? So if that's an unknown, the site's probably not competitive. So you just need to know that kind of like we were just talking about this kind of, you know, as an EDO, you just got to be realistic with yourself. Look at the site. Does it make sense to the industrial does it make sense more to be housing does it make more sense to be mixed use that's something that only you're going to know based upon surrounding uses access to highways are there pedestrians around or the infrastructure how bad are the issues you know we just talked about and those sorts of things also you know if you've got a beautiful nice industrial park on the edge of town you've got some shovel ready sites and authenticated sites and certified sites it probably doesn't make a big a lot of sense to jump into you know doing this but if you're a community that's kind of you know maybe you're bound up by suburbs on the other side or maybe you don't have the infrastructure out on the edge of town to make an industrial park maybe this is the right place to plant your flag and do a project a lot of those really expensive you know infrastructure is always the most expensive part of site development so if it's already there this might be the place to plant your flag and look but it really kind of depends upon just doing an analysis yourself to what you can do you know and you need to be able to communicate on these kind of the programs that are typically needed on these as some sort of brownfield or remediation transportation you know anything to because typically the road in and out of a mall isn't what you're looking for for a road for semi trucks so you know that have your kind of your traffic abatements or your traffic you know grant programs or road development programs kind of up to date and then you know anything that you can do to mitigate construction costs whether that's you know sales tax savings on construction materials etc tips anything that can drive down some of the construction site development cost
Nate Green 26:31
yeah no that's all good stuff and i think that's those are all good points especially you know as economic development specialist i think you know you're hit with so many things i think it's good for to hear the experts like you talk about it so you know what that's a good point we should we should go after that my last question for you is is you brought up flint but i think what what successes have you seen what's the what's kind of the best adaptive reuse of one of these malls that you're seeing
Jason Kester 27:01
yes as i mentioned there is a hospital up in ontario ohio which that would be the suburb of mansfield used to be a big gm plant there so the mall was right next to the big you know multi 1000 acre oem kind of like what we were just talking about but the local health center went in and has redeveloped that mall into a health community health center hospital those sorts of things have really invested it's kind of kept that area alive because that's really a compatible use because there are hotels or restaurants there are things that are thriving in ontario right next to that so it's you know now those workers at the hospital can go over and utilize those accesses and those services that's really been that's really been a big great success and then like i said flint kind of redeveloping a different brownfield site sort of pretty creative adaptive reuse of that brownfield site very similar to each one of these projects but yeah they're in ontario has been the best example of redevelopment of a mall site to give a shout out to the folks up in richland county mansfield and ontario for getting that done
Nate Green 28:09
nice they'll appreciate it i mean hopefully they listen to our podcast jason so you know though there'll be all over
Jason Kester 28:15
hopefully, hopefully.
Nate Green 28:16
well dave you got any you got any other questions for for our buddy jason
Dave Robinson 28:22
no i i think he's answered them all i think it's a great topic i think it's complicated i think it's pretty easy to look at a grayfield mall and say hey you know what the heck's going on with that so i think that due diligence you need to do upfront to kind of figure out you know what what does the lease say what does the easement say it's that due diligence is going to be really important now i think if you can overcome that i think it's a phenomenal market and i don't care if it's mixed use for multifamily or logistics these mall sites were put there for a reason and the reason still exists it's still it's still you know a high profile place it's still connected to a great roadway system it's still around a lot of people so it still fits in and there used to really big structures right so it is if they passed that some of those due diligence questions that jason went over i think they can be phenomenal projects
Nate Green 29:23
absolutely totally agree well jason thanks a lot for your time and being on our podcast today we are podcasts are so much better when we get to you know great experts like you on it so i really appreciate you being on and and helping us out and given everybody you know dropping dropping some knowledge on our on our phone
Jason Kester 29:43
thank you guys for having me
Nate Green 29:44
alright thanks jason
Dave Robinson 29:45
you're great american thanks all right thanks well well we'll we'll talk to you later everyone have a great day
Nate Green 29:53
all right thanks everybody bye
Jason Kester 29:55
we'll see you guys