As the holiday season approaches, the Hudson Valley Mall (HVM) in the Town of Ulster, once the epicenter of retail commerce in Ulster County, seemed to be bustling. Appearances can be deceiving.
At two o’clock in the afternoon of Black Friday, about 90 per cent of the parking spaces in front of the Target anchor store were filled. Customers bustled through the entrance, and many came back out carrying white plastic bags with the familiar red Target bullseye logo. Stores like H&M and Best Buy were crowded with inquiring shoppers, and many people of all ages strolled up and down the hallways of the enclosed mall, built by the Pyramid Company in 1981. The tables in the food court were crowded with the groups of teenagers referred to, sometimes disparagingly and sometimes affectionately, as the “mall rats.” Private security officers and janitorial staff were strategically placed.
All is not well with the Hudson Valley Mall — and it’s not just because Black Friday may no longer live up to its billing as the peak day for consumer spending it was touted to be just a few years ago. In the past year, the mall’s financial picture has markedly deteriorated, according to its creditors, and what is called in the trade its ‘performance problems’ have intensified. Barring a sudden improvement in circumstances, the 765,000-square-foot mall may soon face bankruptcy.
There are a variety of reasons why a turnaround will be difficult. Mall manager Terry Parisian blamed the continued lag of consumer spending power in the country for HVM’s problems. There can be no question that the long recession has resulted in virtually stagnant overall retail sales. All classes of shopping experiences have been negatively impacted.
“Black Friday is over and here’s what matters,” said a quarter-page ad from an association of shopping centers in The Wall Street Journal last week. “The integration of physical and digital retail is actually taking place…in shopping centers. The shopping-center industry is essential to economic development and opportunity. They are a significant job creator, driver of GDP, and a critical revenue source for the communities they serve.”
But it’s not just the amount of money available for spending that’s involved. There’s been a big shift in how people shop. One reason, the switch from bricks-and-mortar to on-line shopping, has been getting the lion’s share of media attention. Garnering 7.4 percent of national sales in the third quarter of this year, e-commerce is growing at about 15 percent a year. But most purchases are still made in physical stores.
There are other reasons. Saddled with higher costs and operating in a less-than-vibrant economy, HVM’s market share has been gradually eroding in its competition with local strip malls, big boxes, community retail shopping areas and outlet centers. The proportion of local businesses at the mall has diminished, and the national chain stores, faced with their own pressures in an economy where consumer spending has flattened out, have become even more footloose. As many communities have learned, they can be a restless bunch.
Everybody talks of a turnaround fueled by an Apple store, a Forever 21, a Uniqlo, a Muji or a Samsung presence. But there’s a problem, the one connected to the lack of local incomes. Why would such hot retailers come to Ulster, and how long would they stay if they did come?
HVM is a much smaller enclosed mall than the ones in Poughkeepsie and Albany. The limited product choices available in the remaining stores at HVM has added to the erosion of the customer base. As what is classified (by sales per square foot) as a “C” mall, the Ulster enterprise is more vulnerable to the present retrenchment of retail than more upscale malls located elsewhere, many of which are flourishing even as their smaller brethren are falling by the wayside. Larger malls have greater resources to pivot toward lifestyle features that emphasize not just shopping but other parts of the visitor experience.
Nationally, larger malls are weathering the transition more easily than small ones. That shows up in the bottom line of both types.
Consumer tastes are changing, too. In a relatively small market such as Kingston-Ulster, many local businesses looking for a new location feel more comfortable in a lower-rent strip mall than in an enclosed mall. Kingston Plaza seems to be attracting offices as well as retailers. Kings Mall has been successful in strengthening its tenant base, with Mother Earth in particular expanding.
The picture at the big boxes and the strip malls is mixed, of course, with both ups and downs. Across Route 9W from Kings Mall, Sports Authority recently announced its abrupt closing. Nearby, a store disappeared when Office Depot and Staples combined. Grossman’s is long gone. H & V Collision Repair now has an Ulster location.
There’s been a lot of worry both nationally and locally about an oversupply of commercial space. For Ulster County, the virtual standstill of the local economy hasn’t helped. To quote a Credit Suisse research report about HVM in April, “The cause of the recent swift decline in occupancy is hard to peg, but Ulster County has been in an economic decline from its heyday.” There’s clearly a market imbalance of commercial space: more space looking for tenants than tenants looking for space.
HVM is laboring under the burden of a $50.1-million loan securitized in 2011. Credit Suisse said that the mall’s service coverage ratio had fallen steadily from 2011 to the point where its cash flow no longer covered its debt. The HVM loan was sent in October 2014 to a watch list for special servicing, which involves a determination of whether the loan could be saved or should be sent to foreclosure. In April 2015 it was sent to special servicing.
It’s no surprise to find the people who hold the mortgage focused on whether they’re going to get paid. But the April Credit Suisse research on the heels of the announcement of the closing of the JC Penney anchor store at HVM contains important data that indicates the situation may be getting precarious.
“Since mid-January, six tenants have closed and the vacancy rate has risen to 35 percent as of April,” Credit Suisse says. “An additional 17 percent of the space is operating under modified lease terms or is subject to a month-to-month lease…The leases on an additional 18 percent of the space is set to roll over the next year or have provisions that would allow the tenant to vacate if sales fail to improve.”
According to Ulster town supervisor James Quigley, HVM is seeking to reduce its assessment from $64 million to $40 million. That isn’t good news for the local tax base, faced already with the teardowns at TechCity and other challenges. But the situation could well be even more challenging than that. Quigley worries about a double hit, the combination of higher taxes from a shrinking and overbuilt commercial real-estate base and lower sales-tax revenues due to a stagnation of spending power.
Though numerous, jobs in retail trade are close to the bottom rung of the economic ladder, not to be sneezed at when jobs are scarce, but not well-paid. According to the latest federal figures in the American Community Survey, the number of jobs in Ulster County retail trade slipped from 11,623 in 2010 to an estimated 11,365 in 2014. Median earnings decreased from $21,636 in 2009 to $21,188 in 2014. (Median earnings countywide in all jobs were $33,556 in 2009 and $35,230 in 2014.)
A Kingston Daily Freeman article cited in the Credit Suisse report said, “The article also indicates the mall’s management has contemplated turning portions of the property into a multiuse building that could include such things as a bowling alley, a library, gym or even college classrooms.”