Is it better to renovate or rebuild? That is the question facing developers and retailers as aging shopping centers and freestanding stores need to be either spruced up — or bulldozed and rebuilt from scratch.

The options are clear: You can rehab the existing structure; tear it down and start over; tear part of it down and renovate part of it; or close the property altogether and sell it. Assuming there's enough potential for return on investment, the decision essentially comes down to: Renovation or demolition or a combination thereof (see Glendale Mall story on page 54).

Less clear is how to compute the cost of renovation vs. the cost of demolition and reconstruction. Several factors must be considered. Depending on how severe the problems are — for example, awkward structuring, small spaces, low ceilings or eroded foundations — partial or complete demolition might be the best bet over time.

The initial cost of a rebuild is, of course, much higher than a renovation. Knocking down and rebuilding a shopping center that's, say, 400,000 square feet, could set developers back $20 million more than renovating the space, says Matthew Gray, president of Graycor Construction Co. in Homewood, Ill. Not surprisingly, most developers settle for sprucing up a property that shows signs of wear.

But over the long term, starting over from scratch can be more profitable. “When you renovate you have to deal with an existing structure. You would have to live with a feature that's unacceptable,” says David Parrish, a partner at architecture firm Dorsky Hodgson + Partners. “But if you can just go in and demolish it, you can build the building you want with a pricing structure that you know and understand. That can be cheaper,” in the long run for developers, which get higher rents, and tenants, which sell more.

Michael Rulli, CEO of Coyote Management in Dallas, says sales at Park Plaza, a 650,000-square-foot dumbbell mall in Little Rock, Ark., that was demolished and rebuilt as a 1.1 million-square-foot space in 1988, more than tripled to $350 per square foot from $100 a square foot. Park Place is considered the classic model of repositioning — architecture-speak for demolishing and rebuilding. The center had limited parking, a closed bowling alley and a freight tunnel in its basement. The 18-month construction job cost $55 million, $21 million of which reportedly went to new concrete, wood and steel. The project was about $15 million over budget, Rulli says. But, he adds, the extra revenue over the long run made the investment worthwhile to tenants.

Steven Rivers, senior vice president of Hardin Construction Co., agrees that construction costs aren't the only measure of a successful re-do. “It's not so much about the money (spent on rebuilding); it's about making the property work,” he says. Hardin recently demolished an old Dillard's and Jordan Marsh at Florida's 33-year-old Pompano Fashion Square Mall (now called Pompano Citi Centre), while anchor stores Ross Dress for Less and Sears remained open. “It was ugly, just completely rundown,” Rivers says of the mall. “It wouldn't have done any good to renovate it.” What's more, traces of asbestos in the existing structure would make a renovation even more complicated.

The first step, of course, is persuading local governments and tenants that bulldozing the existing structure has long-term profit potential. Richard Green, vice chairman of operations at Westfield America Trust, which recently spent $237 million overhauling most of the Westfield Shoppingtown West County Center in St. Louis, Mo., says it took some time convincing the city and the tenants that a do-over was necessary. “We had to convince the city, because we needed road improvements and funding for parking. And we had to convince the May Department Stores Co. to agree to close its Famous-Barr store, tear it down and rebuild,” he says. “It was undersized for the market, so we basically doubled the size.” May relocated its employees during the rebuild. Tenants are benefiting from increased sales and the city, from increased tax revenue.

Raze the Roof

Even if the properties appear to only have aesthetic flaws, demolishing may be a better choice. During a renovation of a mall in Charlotte, N.C., U.S. Builders' Tim Ferguson and Chuck Hickey had to remove a 13-foot high pedestrian walkway and reconfigure the mezzanine. “It cost them $500 a foot just to take out the beam. And we had to add more steel to support the roof before we could renovate the mezzanine,” says Ferguson. “It cost the developers quite a bit of money to do it this way,” he says. Demolishing and rebuilding might have been cheaper.

Sometimes, a compromise is the best — and least expensive — plan. MCG Architecture and Robert Kubicek Architects and Associates, for example, recommended that the owner, Arizona Partners, retain the steel grid of Country Club Plaza in Sacramento, Calif., during a major overhaul, and work around it. “We saved a little money on the seismic code,” says Neil Kuhns, director of design at MCG. The existing structure met earthquake protection requirements. Replacing the structure and adding the necessary bracing would have added considerably to the expense.

Country Club Plaza wanted to add another 100,000 square feet to its 369,000-square-foot frame, move the common area to the back of the facility and completely restructure its tenant space. “The depths of the shops were way out of proportion,” says Kuhns, who started the $31 million construction project with MCG managing partner Jeff Gill last summer. “They were about 150 feet deep, which you could never lease now. It should be around 70 or 80 feet.”

For this project, which is to be completed in December, repositioning seemed to be the most logical solution because, Gill says, “if owners are really in a hurry to get new tenants in, it's quickest just to knock it down and start over.” Drawn-out negotiations with existing tenants can prove more troublesome than just buying out their leases and starting over with a fresh roster. Along with the two existing anchors, Macys and Gottschalk's, three 30,000 square foot shops were added, including a new Bed Bath & Beyond.

For deteriorating properties that require major overhauling, filling dark tenant spaces with big-box traffic magnets such as Target, gives smaller tenants hope of regaining profits.

Sometimes, an entire mall isn't worth renovating, but an anchor — or a portion of a mall — has to be rebuilt to bring shoppers back to the center. Recent construction at the Forest Village Park Center, a 470,000-square-foot mall in Prince George's County, Md., for example, replaced a closed Kmart with a 127,000-square-foot Target anchor, reviving the struggling center. “The one-level Kmart was too small, so we tore it down,” says Walter Petrie, chairman of Annapolis, Md.-based Petrie Ventures, which bought the property from Simon Property Group last April. “The tenants are doing back flips. Bringing in Target helps a lot, and the fact that we're spending money upgrading the center will increase sales for them,” says Petrie, whose company paid more than $30 million for the demolition and renovation work on the mall, which was renamed The Centre at Forestville. Target, opening next fall, will anchor opposite a 150,000-square-foot, two-level JCPenney, which underwent extensive renovation.

Freestanding stores are also using the bulldozer method to redesign properties. Ikea recently tore down its 12-year-old, 156,000-square-foot, single-level property in Houston and built a 300,000-square-foot, two-level store about six feet to the rear of the original. Renovating the space was considered, “but it wasn't a big debate,” says Carolina Witt, project manager for Ikea Houston. “We needed more parking, more ceiling height. It would have taken much longer to renovate it.”

The Swedish home décor chain, which is spending an estimated $55 million on the overhaul, also purchased 5.5 acres to add to its original 12 acres from a Dodge dealer next door. It plans on using the lot to create about 1,200 more parking spaces. The new store, due to open next August, will include a restaurant and large children's play area.

With the same idea in mind, the family that owns the Harlem Furniture chain in Illinois plans to spend 22 weeks to tear down the 53-year-old, 25,000-square-foot building that houses The Room Place at its flagship in Chicago. The new store, which will be designed as a real home, complete with a living room, dining and kids room, will have taller ceilings, larger windows and more parking.

For a mall, or for a big store, many experts agree, it's best to bring in a bulldozer. “You're removing portions of the building that were not well located. You're freeing up visibility and parking, possibly adding more depth and density to the project,” says Robert Breslau, president of Stiles Retail Group. Tearing it down “just makes more sense.”

Finding a Happy Medium

Glendale Mall's owners rebuilt half and renovated half.

Before reconstruction, half of Glendale Mall, one of Indianapolis' oldest enclosed retail centers, was dark. The 45-year-old, 571,299-square-foot structure, purchased by Indiana-based Kite Development Co. in 1998, was mired in losses as it tried — but failed — to compete with newer lifestyle centers built nearby. Just four miles away, Simon Property Group's newly renovated 1.4 million-square-foot Castleton Square dominates the retail landscape. Over time, Glendale became an oversized shell of unleaseable space.

“Structurally, it was too big for the market,” says Gregg Poetz, Kite's vice president of leasing. “Instead of being a regional mall, which was what the property was probably built for, it should be more of a neighborhood mall.”

So with a $25 million budget, Kite, along with architects Dorsky Hodgson + Partners, decided to demolish and rebuild the southern end, getting rid of small shops and making room for junior boxes, restaurants and move theaters, and renovate the other half. “We had to give the property new life,” says David Parrish, Dorsky Hodgson principal. “We strengthened the remaining stores and added significant components to add traffic.”

Contractors turned a closed Lazarus into a Stein Mart and an Old Navy, and extensively renovated its only other anchor, a 237,455 square-foot L.S. Ayres, says Poetz.

Other new tenants include Lowe's Home Improvement, a branch of the local library and classroom space for Indiana University and Purdue University on the lower level, which was completely vacant, says Parrish.

Now, with 710,000 square feet of leaseable space, average sales at non-anchor mall stores exceed $220 a square foot, up from $125. “Glendale was a cornerstone in the community,” says Parrish. Redefining itself as a neighborhood mall, says Poetz, Glendale has become a contender once again.