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Fashion Square mall facing 'imminent default,' analysts say

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Many stores have closed in the Charlottesville Fashion Square mall in recent weeks, leaving vacancies throughout the property.

The loan on Charlottesville Fashion Square mall is “facing imminent default,” according to a commercial real estate market data and analytics firm.

Trepp LLC, based in New York City, wrote in November that the $45.2 million Charlottesville Fashion Square loan — which is split across two commercial mortgage-backed securities — was sent that month to special servicing, according to special servicer notes. Trepp said that the notes were limited, indicating only that the loan is “facing imminent default.”

The firm said that the commercial mortgage-backed securities debt is split between a $27.2 million piece and an $18.1 million piece.

Fashion Square mall is part of a nationwide trend of declining malls.

“The mall as we know it, for the most part, is dead,” Mark Cohen, the director of retail studies at Columbia University’s Graduate School of Business, said last week, speaking generally.

Last year, owner Washington Prime Group reclassified Fashion Square from a Tier II property to a non-core property, which means the company will likely remove the mall from its assets.

In July, the company said that the loan was identified as one of four consolidated mortgage loans that the company planned to work on with special servicers.

Representatives from the mall did not respond to a request for comment by press time.

A number of mall stores that have closed since late 2018 were owned by companies that declared bankruptcy — Sears Holdings, Charlotte Russe, Crazy 8, Payless ShoeSource, Charming Charlie and Motherhood Maternity. Others, like Gap, which closed on Jan. 26, closed as part of a company restructuring plan.

Some companies have closed their Fashion Square location independent of a mass closure, such as Buckle and Starbucks.

Other shopping centers in the area have not been immune to store closures in the changing landscape of retail — Pier 1 is closing in the Shops at Stonefield as part of a company plan to close up to 450 locations. Arts and crafts supplies retailer A.C. Moore is closing all of its stores, including the location at 5th Street Station.

No potential buyer for the mall property, should it default, has yet materialized. Despite rumors that the University of Virginia might purchase the property, spokesman Wes Hester again said this week that the university is not buying the mall.

A freestanding Longhorn Steakhouse was proposed for the north portion of the property, near Wells Fargo and fronting U.S. 29, but that application was withdrawn in November, according to county records.

The mall is in an area that Albemarle County has identified as a priority area for public investment and redevelopment.

A planning process began in 2016 and resulted in the Rio+29 Small Area Plan, which was adopted by the county Board of Supervisors in late 2018.

The plan covers about a half-mile radius around the U.S. 29 and Rio Road intersection, minus the single-family homes, and calls for a walkable community with public amenity spaces.

County staff members are now working on zoning updates, including a form-based code, for the area. Form-based codes are land development regulations that, rather than dictate occupancy levels and specific uses, focus on the form and mass of buildings and streets in relation to one another and public spaces.

“With walkability, it means that there needs to be more of an internal street network than there is today and that is an expensive cost for property owners to develop, and that’s something we’ve heard concerns about,” Albemarle Senior Neighborhood Planner Michaela Accardi said.

She said county economic development staff also have looked at options other than zoning that could encourage redevelopment.

“It’s certainly not to say that updating the zoning is going to address all the challenges that property owners are facing, and so this will be ongoing work to figure out what the other tools should be to incentivize different types of development to happen,” Accardi said.

The rise of e-commerce, poor leadership among mall developers and retailers and unchecked retail development have led malls to this point, Cohen said.

“There was this extremely pernicious over-proliferation of retail,” he said. “Too many malls, too many strip centers, too many stores that essentially were almost identical one to the other, and yet everybody was doing business and everything seemed to be fine. It wasn’t fine.”

“I think this trend has no end in sight,” Cohen said. “I think there are hundreds of malls that are failing and will fail — a few will be saved.”

Some malls across the country, like Virginia Center Commons and Regency mall, both in Henrico County, are slated to be redeveloped into mixed-use developments.

Cohen said the revitalization and redevelopment of malls isn’t happening everywhere.

“For the most part, there’s no pathway back into success,” he said. “How many restaurants can you open? How many climbing walls can you install? How many gyms? How many doctors office complexes can you create? It’s really a tough situation.”

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