Investment Analysis

Retail Revival

A new strategy breathes life into zombie centers.

Wikipedia lists about 200 regional grocery chains in the U.S., comprising thousands of stores. Each one is in a constant battle for survival. Competition plus consolidation means that even strong chains are forced to close marginalized stores with unprecedented frequency. In the next few years, hundreds of empty grocery stores may be added to the growing inventory of vacant big-box space.

Often, empty grocery big boxes are in aging class C strip centers that relied on the grocery store as the anchor to bring in traffic for smaller tenants. Frequently, the loss of the anchor results in the eventual loss of some of the smaller tenants, or even triggers a “go dark” provision, exacerbating the problem. TheWall Street Journal dubbed the resulting, mostly vacant, buildings “zombie properties.”

A Retail Solution

Managers and owners of zombie centers often have only a few choices: Find a replacement tenant (a disappearing commodity), sell the property at a substantial discount to another investor, or lease it to a secondary, less profitable user such as Goodwill, local governments, or a church.

But another option is to open a specific type of store in the vacant grocery space: an antique mall.

Antique malls are part of a $13 billion used-merchandise industry that grew stronger during the recent recession. According the U.S. Census Bureau’s Monthly Retail Trade Survey, used merchandise sales grew 21.2 percent from 2008 to 2012, while total non-auto retail sales dropped 7.1 percent.

There are about 3,500 antique malls in the U.S., up about 8 percent from last year, according to Mike Becker, vice president of the Antiques & Collectibles National Associationof Davidson, N.C. Antique malls range in size from as little as a few thousand square feet up to the 80,000-sf Peddler’s Mallnear Louisville, Ky.

Antique mall operators and ownerssublease shops or booths to dealers who sell collectible and antique merchandise. The antique mall provides the sales checkout service and delivers the proceeds to the dealer after deducting the monthly shop rent. The operator also advertises; staffs the shop; collects sales tax and pays it to the state; provides utilities; and maintains the mall and all other services necessary to run a retail business. Most are open seven days a week.

Dealers provide, display, price, and tag their merchandise; some visit less than once a month. Most dealers don’t make a lot of money. Their shops are often more hobbies than businesses intended to make a profit. Renting a shop space costs a little more than renting a storage facility and offers social value and a way to sell their treasures so they can make room and money to buy more.

Value-Add Strategy

In 1999, our group, CPS Enterprises LLP, acquired Bells Ferry Landing, in Acworth, Ga., a 54,000-sf retail strip mall, for $2.5 million. We lost the 25,120-sf furniture store anchor that was paying about $12,000 a month for a former grocery space. Unable to lease the space, in 2002, we opened our first antique mall, the Elegant Flea(now Woodstock Antiques). To our surprise, it was successful. The mall was able to pay a higher rent of $14,000 a month and subsequently we sold the building for $3.7 million in 2005.

We opened two other malls in rented spaces (a former grocery and a closed Walmart) in 2002 and 2003, testing and refining our business model. All the while we continued to look for another attractive acquisition to revive with a new store. But, as the overall business market strengthened and commercial properties went up in value in the early 2000s, we were unable to find a property to fit our criteria at an acceptable cost.

After the Great Recession hit we renewed our attempt, and in March 2012 we purchased a 54,300-sf center in suburban Atlanta that met our requirements. West Cobb Plaza in Powder Springs, Ga., was bank owned and 80 percent vacant. We acquired it for around $22 psf — about the value of the land. The existing tenants were paying $9,000 month in rent, which was barely enough to cover the basic common area maintenance costs much less any capital improvements or a mortgage.

Two months after buying the building we opened Treasure HuntAntique Mall in the 27,500-sf former grocery space. Now, a year later, the property is 85 percent leased and the monthly gross income is about $24,500 and will be higher next year.

We have a very low cost in the building and very low debt service; therefore, we have been able to lease our smaller tenant spaces at roughly half of the normal rental rate for similar properties and still enjoy a reasonable cash flow. The low rents are why we have been able to add tenants so quickly using one, two, or three-year leases. Once we have proven to the tenants that we will maintain the building, bring in new customers, and help grow their businesses, we will slowly bring their rents closer to normal market rates.

An antique mall may be a good value-add strategy as property owners wait out the struggling retail market recovery. Antique malls can pay substantial rent and draw customers for the smaller businesses in the building. In addition, the revived center creates jobs.

Since no inventory is required, the cost to start an antique mall is relatively small, generally less than $120,000, which is usually recovered in less than a year. Quick to start, they can also be shut down quickly if a more desirable tenant commits to the space. All these factors make antique malls a viable choice for filling vacant big-box space.

Jim Conway of Conway Equities LLC in Roswell, Ga., has more than 30 years of commercial investment real estate experience. Contact him at


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