Willow Bend mall bets big on diversifying tenant baseThe Shops at Willow Bend recently announced plans to construct a seven-story office tower into the existing mall, part of what industry researchers have described as one of the most ambitious shopping mall redevelopment projects in the U.S.

The owner of Plano’s higher-end shopping mall, Chicago-based Starwood Retail Partners, is pouring $125 million into expanding and renovating the property in a bid to benefit from mixed-use development concepts. The project comes as the retail industry continues to see sustained declines in department storefront sales.

The 800-employee office tower and other redevelopment projects at Willow Bend serve a common purpose: installing a new series of destination-style attractions to bolster foot traffic—a role that malls have traditionally leaned primarily on their anchor department stores to fulfill.

“The idea is create more traffic for the mall,” said John Albright, vice president of development for Starwood Retail.

In addition to the office tower the property announced in May, the Willow Bend mall is undergoing substantial construction on its eastern side as it prepares to install a new primary entrance from the Dallas North Tollway lined with eight chef-driven restaurant concepts including Knife, a steakhouse by celebrity chef John Tesar.

Crews at the mall  will also construct a new facility to open a Crayola Experience indoor children’s amusement center. Inside the mall, space is being renovated to accommodate the Plano Children’s Theatre. And developers plan to install an upscale movie theater, a luxury health and fitness club and—if they find the right partner down the line—a hotel, Albright said.

As large retail storefronts continue to adjust to a retail market where an increasing share of purchases are made online, some shopping centers have an incentive to reinvent themselves, said Bob Young, executive managing director at the Dallas-based retail real estate firm Weitzman.

Such capital-intensive projects, Young said, are “not for the weak of heart. They’re for the strong. You’ve got to be playing with ownership groups that have deep pockets and have the reserves and capital and patience to convert these [properties].”

A new kind of anchor

It is not uncommon for retail properties to try to attract what developers refer to as “experiential” tenants—but the diversity of these uses at the Willow Bend mall and the sheer scope of the project are more ambitious than what industry researcher Steve Jellinek has seen at most shopping malls.

Jellinek, a commercial mortgage-backed securities executive, analyzes retail assets across the U.S. for Morningstar Credit Ratings.

“It’s hard to tell what’s going to work and what’s not going to work—but you can’t fault them for their creativity and the fact that they have the money to do this,” Jellinek said of Starwood Retail’s efforts to diversify the Plano mall.

The Willow Bend mall upgrades come at a trying time for a number of large retail properties, Jellinek said.

Willow Bend mall bets big on diversifying tenant baseDepartment store giants like J.C. Penney Co. and Sears in recent years have shuttered hundreds of stores across the country—including, in March, the Macy’s location at Plano’s Collin Creek Mall—as storefront retail has adjusted to dramatic shifts in consumer spending habits.

When a mall loses an anchor store, the property’s broader tenant base can languish, Jellinek said, prompting owners of struggling malls to seek more creative and diverse uses to fill the gap. Less common, he said, is such an intensive diversification effort at a well-located property with fixed anchors like the project underway at the Willow Bend mall.

“In terms of a performing property going through the kind of transformation that the one down in Plano is going through, that’s not as prevalent,” Jellinek said. “That doesn’t mean it won’t work. It just depends on if you have the population and the demand for the office as well as for the retail and the restaurants.”

Albright said the shifting state of department store chains—which have been expanding their online sales efforts as they transition to a model with fewer physical stores—does not dim the long-term importance of the Willow Bend property’s traditional anchors.

“I don’t necessarily think we’re replacing department stores,” Albright said, referring to Neiman Marcus, Macy’s, Dillard’s and Crate & Barrel. “What we hope to be doing is bringing more people to the property, and consequently supplementing or assisting our retailers to thrive and achieve their goals.”

A mixed-use blueprint

Developers of mixed-use projects have extolled the benefits of integrating offices and apartment buildings into retail-heavy developments, arguing that the uses complement each other and enable property owners to support a denser and more profitable mix of stores and restaurants.

In the case of traditional shopping malls, Albright said, the Willow Bend property could simply be ahead of the curve.

“I think nationwide, you’re going to see more shopping centers evolve into mixed-use developments,” he said.

One of the mall’s nearby competitors, Stonebriar Centre in Frisco, is embracing similar concepts, adding a 15-story hotel and conference center.

If the Willow Bend mall’s efforts succeed, it could help support the smaller retail stores that tend to remain well-leased in spite of department store troubles nationwide, Young said.