It just isn’t worth what it used to be.
The owners of Regency Square mall in Western Henrico County announced today that they have written down the value of the 34-year-old mall by more than $55 million dollars.
Taubman Centers, a Michigan-based real estate investment trust (REIT), bought the mall in 1997, taking out a loan of $82.5 million.
For accounting purposes, the property was recently valued between $85 million and $88 million, but because of declining income and money spent updating the mall, the owners have reduced its book value to about $30 million. Book value is the amount Taubman paid for the mall minus depreciation. The adjustment also takes into account expected future income.
“It’s an accounting practice,” said Taubman spokesperson Karen McDonald.
The REIT is required to adjust the value of its portfolio according to fair market value. The trust owns 24 shopping properties in the United States.
McDonald said the value adjustment wouldn’t affect day-to-day operations at the mall.
“Regency plans to continue to service its loan. It’s basically business as usual for shoppers, retailers and employees,” McDonald said.
Yesterday was indeed yet another day at the mall. Visitors walked around the mall, but, judging by the lack of bags, most seemed to be window-shopping. But the food court was full of people for lunch, and the mall has had a few more stores to visit since spring.
Only about 13 of the mall’s 70 or so store spaces appear to be vacant, compared with about 15 when BizSense counted in April. Several store spaces are hidden behind large partitions, and some of the spaces are being combined for incoming retailers. Macy’s, Sears and JCPenney anchor the mall.
Clothing store XXI Forever is coming to the mall by the end of the year and is taking more than 40,000 square feet. The store will be on both floors of the enclosed mall.
Other stores that have plans to locate at the mall include ProSports, Regency Clothiers, Li’l Shop of Cards, and Mediterranean Cuisine and Bakery Art.
Over the past year, Taubman has invested money into the mall upgrading lights, furniture, tiles and the food court, as well as renovating store space for incoming tenants.
McDonald pointed to the economy as part of the reason the mall has lost value as an asset.
“The current economy overall is affecting everyone,” McDonald said.
Since Taubman purchased Regency more than 10 years ago, new malls have entered the market, including Short Pump Town Center and the Taubman’s other area property, Stony Point Fashion Park.
Thalhimer broker Connie Jordan Nielsen said the mall was No. 1 in Richmond until those two centers came along.
“Regency is no longer number one. It’s not achieving the same rents that they were, and sales per square foot aren’t what they used to be, because they have been predominantly transferred to Short Pump,” said Nielsen.
She estimates sales several years ago were about $450 per square foot; now it is likely around $300 per square foot, she said. According to local tax data, sales at Regency fell from $203 million in 2002 to $127.8 million in 2006, a decline of more than 37 percent. Retail sales across the country have fallen dramatically from 2007 levels.
But Regency is hardly going the way of local dead malls like Azalea Mall or Cloverleaf.
“There is some vacancy, but there are a lot of retailers coming into the area,” Neilsen said.
Neilson represents property near the mall and said the area still has good incomes and lots of traffic. With most high-end retailers setting up shop at the newer malls, Neilson said Regency is most likely looking to bring in tenants that cater to customers with more moderate incomes.
Taubman is also writing down the value of another property, the Pier Shops at Caesars in Atlantic City. That mall will be reduced by as much $111 million, down to $52 million. Performance at that mall hasn’t met expectations because of a recession-spawned decline in gambling at area casinos.
“We’ve invested a significant amount of time and capital in these two properties,” said chairman Robert Taubman in a statement. “Unfortunately, the current economic environment has worked against our best efforts.”
The two properties represent less than 2 percent of the entire company’s net operating income and are expected to reduce shares by $0.06.
Al Harris covers commercial real estate for BizSense. Please send news tips to Al@richmondbizsense.com.
