So welcome to the teeny tiny shoebox apartment inside The Arcade. There are lots of others in the building just like this, so mine is about 250 square feet. There's a walkway right in front of the facade because this used to be a shop front, and so people had to access all of the shops in the building.
While malls across the U. S. are facing store closures and empty parking lots, some are finding a new life from an unlikely source.
We are here at the Arcade Mall in Providence, Rhode Island, the oldest indoor shopping mall in the country. The Arcade had long been a center point in Providence's bustling downtown, but like other malls, it fell on hard times and was completely vacant. But rather than letting this historic building fall into ruin, developers came in and decided to build 48 micro lofts here on the second floor and up here on the third floor.
While top tier malls continue to be in high demand. Nearly 34,000,000 square feet of U. S.
mall space is vacant and off the market. Almost 70% of Americans live within an hour of a mall that has a high vacancy rate, low consumer traffic, or is abandoned altogether. At the same time, the country is facing a massive housing deficit of 4.
5 million homes. There's a housing problem in a lot of markets across the U. S.
, right? This is an opportunity to find land and have a built in customer base to get people into the mall. Monday through Friday, this is really busy down here, it's definitely, you know, people in the offices working, getting lunch or whatever.
My barber is downstairs. As of January 2022, at least 192 U. S.
malls planned to add a housing component. The U. S.
has about 1,100 regional and super regional malls, about 8. 5% lower than 2015. So, can new housing developments help revive the classic American mall?
And what's it like to live inside one? CNBC went to Providence, Rhode Island to find out. Amy Henion has been living on the top floor of a three story mall in Providence, Rhode Island, for the past two and a half years.
What's it like to live at the mall? It's really great. It's cool to be part of such a historic building, and knowing that every single one of these units used to be a shop of some kind.
But living in a converted store, does present some challenges. Here is my very tiny kitchen. It is very small, but it is workable.
And one of the interesting things about the units in the building is that because of codes, you can't have any cooking devices with an open flame, so none of the units have stoves or ranges. Do you ever have any concerns about privacy? Not really.
It's something you get used to living in the building, having people coming and going. Everybody has blinds in their apartment that they can raise or lower as they like. Despite those challenges, residents say having access to shops and restaurants makes living at The Arcade a unique experience.
I get my hair cut in the salon downstairs, and there's little lunch spots, so you don't even have to leave the building. There's a bookstore downstairs and they'll do author talks in the private lounge area. Avoiding New England's sometimes stormy weather is, of course, another perk.
If it's like pouring rain outside, or if it's snowy, you just really can't be bothered to go out in the weather. You can still go downstairs and take advantage of those amenities. And it's not just long term renters that are attracted to the mall.
Scott Sheehan is a real estate investor and rents out his apartment on Airbnb. Some of these business owners that are down on the first floor, how important is it to them to kind of have a built-in customer base with these residents on the second and third floor? I know a lot of folks are very loyal to many of the bars, restaurants, clothing stores downstairs.
So, you know, the business folks downstairs definitely are interested in maintaining that relationship with the residents. You definitely feel like you're part of the community more so than if you were just in a standard apartment building. It has been interesting with people trying to unlock my door thinking that this is an Airbnb apartment.
So, sometimes you have to deal with the public more than you would in a regular home. But for me, that's a small compromise. When a mall dies, communities lose more than just a shopping destination.
Malls often serve as economic hubs, generating billions in tax revenue and creating thousands of jobs. In 2020, U. S.
malls and shopping centers contributed $400 billion in tax revenue. When malls close, it triggers an economic domino effect. Local businesses suffer, jobs are lost, and vacant spaces become eyesores.
To combat this, developers are transforming dead malls into mixed use spaces, offices, medical facilities, and housing. Of these conversions, nearly 54% are being used for residences and office space. Once upon a time, retailers like Macy's and JCPenney were the anchors of America's malls.
But department stores are shrinking. Macy's plans to close 150 of its namesake stores by 2027. JCPenney, which has already closed hundreds of stores since declaring bankruptcy, is closing four more between this year and next, despite a billion dollar turnaround investment plan.
When you have dead retail space, it can be easier to clear that, most of what a retail site is is parking lot, so you don't have to demo much to demo a parking lot. And the buildings themselves are generally easier to demo and then adapt into a retail space. The Arcade is a little bit different than some of the other mall based residential projects out there.
Most of them, like the one at FlatIron Crossing in Broomfield, Colorado, are adjacent to the mall and connected by green spaces or walkways. This was a vacant parking lot, underutilized parking here at the mall, and we, you know, decided to go as a mixed use project here. All of the benefits that the shopping center itself bring to the equation.
You have a highly amenitized residential project that's much more desirable than something that might just be, you know, in an isolated location. Not only does it meet housing needs, but it also revitalizes the property by bringing in a new customer base that can boost on site restaurants, gyms and entertainment venues. While housing and malls sounds promising, it's not without its challenges.
Zoning laws can be a major hurdle. Malls are typically zoned for commercial or mixed use, not multifamily residential. Developers often need approval from local jurisdictions to move forward.
Like any other developer, you are having to navigate things like interest rates, construction costs, the capital markets, and so on. Another obstacle is design. Most malls have limited windows, which are essential for residential spaces because they need natural light, making it difficult to convert certain parts of the mall.
Usually, only the exterior facing retail spaces are suitable for housing. Converting commercial office space into apartments is another trend, but it's often very expensive. A study found that in five U.
S. metro areas hit hardest by remote work, the estimated office acquisition price would need to drop by 50% for the conversion to be financially feasible. Conversion projects are really tricky because you know, a lot depends upon existing conditions which you might not always know about, but to give you a range, on a very low end, you'd be looking at maybe $200 a square foot, to convert.
Where on the upper end you might be looking more at like $800 or more per square foot to convert. Despite those headwinds, malls across America just might have a second chance if they can truly become the housing hubs of the future. The mall is becoming cool again, and so being able to live by it and work by it, play by it, go to restaurants by it.
We're definitely seeing this as a trend. Some people are confused and they'll say, like, why would you want to live in a space that's small? But for me, it's about having a reasonable apartment at a reasonable price that will force me out into the community and interacting with the people outside.
The point is not to stay in the 250 square foot studio. It's to interact with the downtown that you're living in.
