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Mall Values Rose 13% in a Year. Here Is How the Department Store Box Got Repriced.

CREagentic TeamSeptember 23, 20265 min read

The week

Regional mall values rose 13% over the past twelve months, according to reporting this week, driven by steady consumer spending, a sharp drop in retailer bankruptcies, and landlords filling former department stores with restaurants, entertainment operators and luxury brands. Elsewhere, Steph Curry sold a vacant industrial building in San Francisco's Dogpatch for $11 million to an AI insurance startup, and Cohen Brothers signed seven leases totaling about 96,000 square feet at the Red Building in West Hollywood with beauty, fashion and technology tenants.

The anchor box, then and now

In 2019 a mall owner with a dark 150,000 square foot department store had a problem worth negative money. The box paid no rent, the co-tenancy clauses in the in-line leases let tenants cut rent because it was dark, and the only interested buyers were discount retailers paying $3 per square foot. Appraisers valued the box at close to zero and marked the in-line rent roll down for the co-tenancy risk.

In 2026 the same box is a development site with parking, road frontage and a building shell that can be split into a food hall, a fitness operator, a pickleball or entertainment concept, and two or three restaurants with patios. The blended rent on that program is $30 to $45 per square foot on the 60% to 70% of the box that is usable. The remaining space becomes a corridor or gets demolished for a hotel or apartment pad. A box that produced nothing now produces $2 million to $3 million of NOI, and the co-tenancy clauses that were hurting the in-line rents get cured because the anchor space is occupied.

Where the 13% came from

Most of the increase is that reprogramming, capitalized. A mall that was valued at a 9% cap on a $10 million NOI in 2023 and now earns $12.5 million after redeveloping two boxes is worth 25% more at the same cap. Cap rates also came in a little, because the buyer pool for malls went from nearly nobody to a handful of well-funded owners who have proven they can do the redevelopment.

The values are real but they are not evenly distributed. The 13% average includes Class A malls that rose 20% and Class C malls that are still being sold to municipalities and housing developers. The middle tier is where the redevelopment work is happening, and that is where the risk sits, because the program only works with a landlord who can fund $30 million to $60 million of construction and lease it.

What to check before believing a mall pro forma

Read the anchor leases, including the reciprocal easement agreements that govern what a landlord can do with the anchor's box after it goes dark. Many REAs give the departed anchor approval rights over the replacement use for years after they leave. Check the in-line co-tenancy language for what counts as "cured." Some leases require a replacement anchor of similar size and credit, not a food hall. And verify the sales reports for the restaurants that already replaced the old anchors, because the restaurant sector is the one part of retail still shedding operators this year.

The REA is 200 pages and the deal is on page 140

Every mall redevelopment runs through the reciprocal easement agreement and the anchor leases, which together decide what the landlord may do with a dark box, who must approve it, and for how many years the departed anchor keeps a say. These documents are long, old, amended many times, and written by lawyers who expected them never to be read again. The provision that blocks a food hall in a former Sears is in there somewhere.

Document extraction reads the REA, the anchor leases and the in-line co-tenancy clauses together and returns the approval rights, the use restrictions, the cure standards and the notice requirements as a list with page references. That takes a day and replaces three weeks of outside counsel time at $600 an hour, which on a redevelopment budget is a rounding error, but the finding it produces is not. It is the difference between a $40 million construction program that starts on schedule and one that stalls for a year while the former anchor's successor exercises an approval right nobody knew it had.

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