What Dead Malls Tell Us About the Future of Commercial Real Estate

Tracy Alloway (0:10)

Hello, and welcome to another episode of the Odd Lots Podcast. I'm Tracy Alloway.

Joe Weisenthal (0:14)

And I'm Joe Weisenthal.

Tracy Alloway (0:16)

Joe, have you ever been to the Highland shopping mall in Austin?

Joe Weisenthal (0:21)

Absolutely, that's a dead, is it still there? It's, that's like the one that's not done well, right?

Tracy Alloway (0:26)

I think it has officially died.

Joe Weisenthal (0:29)

Okay, I know exactly, okay, I just, I know there's a few, and I know exactly which one that is. I have spent time in it multiple times. I was there before it died, because I lived there 20 years ago. But when I did, it was pretty quiet overall. Like it was pretty grim.

Tracy Alloway (0:44)

Yeah, this was sort of a classic Texas mall from what I can gather, opened in 1971 and then closed for good in 2015

Here's another question. Have you ever been to the domain?

Joe Weisenthal (0:55)

Yes, and that one is much more busy, and I'm pretty certain still exists.

Tracy Alloway (1:01)

Yes, so that one opened in 2007 It is still open. From what I can tell, it's very popular. It's sort of an upscale shopping destination.

And these two shopping malls, the reason I bring them up is they kind of stick in my mind as the classic example of what happened to malls in the sort of 2010s. So you had this bifurcation in the market where some of the upscale ones, the ones that had some sort of, I don't know, like specific offering in terms of entertainment, things like that, did pretty well, while the old school ones, the ones that maybe had big anchor tenants that were no longer as popular, a lot of those went out of business.

Joe Weisenthal (1:42)

Totally. I didn't, first of all, I just want to say, I appreciate and didn't realize that this is gonna be an Austin, Texas episode. So thank you for that.

Tracy Alloway (1:51)

Yeah, just for you, Joe.

Joe Weisenthal (1:52)

But that did, you know, that crystallizes it perfectly for me because I know those two malls and I know how different they are. And the Highland Mall was sort of off a highway, not in a great location, is the kind of place where it probably had some fast food Chinese in the food court, probably a place that sold hats, maybe a candle store, something like that, called like Wicks.

Tracy Alloway (2:16)

You were actually like vividly bringing to life for me, like the early 2000s American Mall.

Joe Weisenthal (2:22)

And then the Domain has like, you know, probably a really nice Apple store in it. I don't know for sure. Really nice Apple store and some really nice restaurants, probably like a cool like burrito restaurant and stuff like that. So yeah, I think that's it.

That's the story of malls, you nailed it.

Tracy Alloway (2:39)

Yes, and the reason I bring up malls in general is because obviously there's been a lot of discussion about the future of commercial real estate and malls fit squarely into that category.

But also in the context of concerns about stress in the office market in particular, I keep reaching back to malls as the analogy here. So like clearly there is a structural issue happening in the market, but that said, you can have specific properties that do better. You can have specific properties that go out of business completely like the Highland Mall. And so that bifurcation seems really important to me.

Joe Weisenthal (3:17)

And I think we've obviously done a handful of office episodes, but it makes sense to think more about this bifurcation because one thing that we've learned, even from talking to various people in the office space is they're like, oh, class A is fine. Not that I know what class A is definitely, but they're like, oh yeah, class A, the really nice new locations, they're fine. It's just that there's a lot of other space that is not what people think of as the modern office building.

Tracy Alloway (3:46)

That's right. There's domains and there's Highlands.

So-

Joe Weisenthal (3:49)

I love it.

Tracy Alloway (3:51)

So on this episode, we're gonna be digging more into the office sector and commercial real estate more broadly. And I am very pleased to say that we do indeed have the perfect guest. We're going to be speaking with Liza Crawford. She's a portfolio manager and co-head of Global Securitized over at TCW and a long time investor in this space. Someone who also covered malls for a while in the, I think in the early 2000s or 2010 So we're gonna get into all of that with her.