Four years ago, Arlington, Va.-based Mills Corp. was fitting a proposed discount mega-mall in New Jersey's Meadowlands for a casket. The REIT began working on the project in 1994, but environmental groups, federal agencies, residents and nearby competitors had dragged out studies, reviews and hearings for years.
But in 2002, Mills' fortunes quickly reversed when the New Jersey Sports and Exposition Authority asked for bids to develop land adjacent to the Meadowlands Sports Complex. Mills was the winning bidder, and in March the company finally broke ground on Meadowlands Xanadu (below), as part of a trend to mega-malls. Pyramid Cos.' Destiny USA proposal would expand its Carousel Center mall to 2.4 million square feet from 1.6 million square feet. The Ghermezian family of Edmonton, Alberta, which has controlling interest in the 4.2 million-square-foot Mall of America in Bloomington, Minn., plans to double the mall's size. And Montreal businessman Rubin Stahl and Greenwich, Conn.-based Gordon Group Holdings are proposing a 330-acre mixed-use project known as Lac Mirabel in Quebec, which would have 1.8 million square feet of retail.
Retail experts suggest the market is ripe for more mega-malls. “As long as you have imaginative developers, you're going to have large projects,” says Jim Dausch, president of the development division for Mills, which owns and manages 41 retail and entertainment centers in the U.S. and Europe. “There isn't a developer in the world who's not thinking big.”
And there's good reason. Typically, mega-malls generate equity returns of 15 percent to 18 percent, or greater, compared with typical returns of 10 percent to 12 percent, say real estate experts. German-based real estate company KanAm, which has invested in several Mills projects, has poured $250 million into Meadowlands Xanadu. Investors in its KanAm USA XXII fund, which has invested $180 million in the project, can expect annual payouts of at least 7.25 percent immediately and a minimum 12 percent — moreover time — as the project stabilizes, says KanAm U.S. president James Braithwaite.
But the fact remains, mega-malls are financially complex and controversial. And the super-size monuments to consumerism lack a deep track record — the Mall of America and the 5.3 million-square-foot West Edmonton Mall in Edmonton, Alberta, which is also controlled by the Ghermezian family, are the only operating mega-malls in North America.
But the two in existence are prime examples of grandiose shopping fantasy lands, throwing retailers, restaurants, amusement parks, nightclubs and aquariums under one roof. In short, developers can't resist the challenge to build something bigger or better — or both.