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About Dulles Town Center

Dulles Town Center (DTC) is a two-level enclosed shopping mall in the Dulles community. The mall caters to the burgeoning and affluent population of eastern Loudoun and western Fairfax counties. It is based in Dulles, Virginia.

Dulles Town Center Headquarter Location

21100 Dulles Town Circle

Dulles, Virginia, 20166,

United States

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D.C. Area’s Malls Are Surviving The Pandemic, But Major Changes Are Coming Anyway

Dec 10, 2020

The D.C. area's wealth and stability have allowed its malls to weather the coronavirus pandemic better than many of their national counterparts. But several malls in the area have already been foreclosed on, and more pain is on the way, proving there is no safe harbor from this storm. Department store anchors have closed in several malls throughout the D.C suburbs, and these vacancies are spurring a new wave of mall redevelopment projects in the region. The scale of the area's redevelopments shows that the future for malls, even the best-performing ones, is poised to come with massive changes. The entrance to the Lakeforest Mall in Gaithersburg. In some of these cases, like Westfield Montgomery mall, the retail center is still strong and a lone department store vacancy has created an opportunity for the owner to transform the property into a more modern, mixed-use environment. In others, like Dulles Town Center and Lakeforest Mall , multiple department stores have closed, the properties have changed hands and the new owners are planning large-scale redevelopments. "If you're in the mall business, you're in the redevelopment business, whether you intended to be or not," H&R Retail  President David Ward said. Nationwide Pain The challenges facing U.S. malls existed well before Americans began wearing masks and staying 6 feet apart. The growth of delivery from  Amazon  and other online or omnichannel retailers has made people less likely to shop in stores, and many retailers have struggled to survive. Department stores have felt the most pain, closing hundreds of stores as they navigate financial challenges. Then the pandemic struck, and government orders across the country forced malls to close. Daily cases of COVID-19 have continued to reach new highs in the U.S. as the winter begins, and shoppers remain wary of crowding into malls. The pandemic has created such a large behavior shift to online ordering that some retail experts doubt mall traffic will ever return to previous levels. Legacy mall anchors like Lord & Taylor, Neiman Marcus and JCPenney have all  declared bankruptcy this year. JLL President Naveen Jaggi , who leads the firm's retail brokerage business, said he expects online shopping to stay above 16% of total retail sales going forward, compared to roughly 11% before the pandemic. "Much of the pain being felt in the mall sector was anticipated, and the pandemic accelerated it," Jaggi said. "The bigger thing we're seeing come out of this is there's been a certain cohort of shoppers that moved online that will likely not shift back to store shopping in the near future." Now amid the holiday season, typically the most robust time for malls, stores are seeing a fraction of their normal foot traffic. The National Retail Federation found the number of in-store shoppers on Black Friday fell by 37% this year . The drop in demand at malls has trickled up to the property ownership level, with some landlords facing severe financial strain. Two mall owners, PREIT and CBL & Associates Properties, filed for bankruptcy  last month. Regional malls backed by CMBS loans that have received new appraisals during the pandemic have experienced an average loss in value of 40%, according to DBRS Morningstar . As of last month, DBRS Morningstar found 93 delinquent CMBS loans on mall properties totaling roughly $9.65B in debt. "We've seen it rise during the pandemic," DBRS Morningstar Head of CMBS Research  Steve Jellinek said of mall delinquencies. "A lot of it began before the pandemic, and in markets that were oversaturated with malls, the pandemic accelerated their downturn." 'It's A Powerhouse Region' The D.C. area has not fully avoided the difficult situation facing malls, but retail experts say it is one of the most well-positioned regions in the country. Six of the D.C. area's malls are backed by CMBS loans, and not one of them has gone into delinquency this year, Jellinek said. The Tysons Galleria mall in Northern Virginia. The region's only mall with a CMBS debt issue was the Tysons Galleria mall, which had a $282M loan maturing  in September that it had trouble refinancing. Jellinek said it has negotiated a one-year extension until next September. Brookfield , the mall's owner, didn't respond to requests for comment. "The only reason why it was an issue was because there wasn't anybody lending on malls at the time to supply it with refinancing," Jellinek said of Tysons Galleria. "The mall is performing fine." The remaining five malls with CMBS debt, the Fair Oaks Mall , Westfield Wheaton, Potomac Mills , Westfield Montgomery and Fashion Centre at Pentagon City , have continued to fulfill their loan obligations throughout this year and have not been granted any sort of modification, Jellinek said. "The D.C. market in general is very strong when it comes to retail," Jellinek said. "It's very dense and it's got a large proportion of high-wage earners, which is a good combination if you're a mall." Looking at all retail-backed loans shows there hasn’t been a trend of distress in the D.C. suburbs this year. Public records data service PropertyRadar found the total number of notices of default on loans backed by retail properties in Maryland and Virginia this year is down 40% from last year, and not a single notice has been filed since June. Jaggi, who has a window into markets across the country from his executive perch at JLL, said he sees the D.C. region as one of the strongest U.S. shopping mall markets. While it has some downtown shopping districts like Georgetown , he said the region's shoppers still lean more on suburban malls than they do in other major cities like New York, Chicago and Boston. "That's a bit of an outlier for me just from the way retailers look and the way owners look and the way investors look at D.C.," Jaggi said. "It's still the government seat of our country. If you need to have any kind of support for a region, that'd be one of them. It's a powerhouse region." The shuttered Nordstrom at Dulles Town Center While it may be doing better than other parts of the country, the D.C. region still has a number of vacant department store boxes at its suburban shopping malls. Sears, one of the hardest-hit retailers, has closed more than half of its stores across the country, including  D.C.-area locations  in Fairfax, Bethesda, Bowie , Hyattsville and Manassas . Macy's  has signaled plans to close 125 stores across the country,  including  locations in Tysons and Alexandria , and it is looking  to sell its Ballston store. Nordstrom announced in 2017 the closure  of its store at Dulles Town Center. Nordstrom still has a store at Tysons Corner Center, the largest  mall in the region. Ward, a broker who works with department stores, said retailers like Nordstrom have found that when they consolidate stores, the customers transfer over and they see a boost at the locations that remain open. "What department stores have found, especially today, is they just don't need as many stores to cover a trade area as they once thought they did," Ward said. "They're becoming more super-regional. So something like Tysons is just going to get stronger, but some of the stores in more outlying areas are less important." The problem for the owners of those malls that lose department stores is a lack of options to backfill the space. New department store leases are hard to find, and the growth of experimental retail concepts before the pandemic has now stopped as their business models have been upended. "Prior to the pandemic, the silver bullet for these properties were entertainment uses that drove traffic and brought vitality back to the project," Ward said. "Those are the exact categories that have been hurt the most by COVID ... All those tenants right now are still in survival mode." Change Is In The Air  The lack of options to backfill department stores has led more mall owners in the D.C. area to pursue large-scale redevelopments of their properties. With some of the malls performing the worst, these redevelopment plans are coming after the previous owner handed over the keys, and the new owner is planning to dramatically reduce the amount of retail on the site. Lerner Enterprises last month sold the Dulles Town Center mall  after it lost Nordstrom and Lord & Taylor during the last three years. Centennial Advisory Services is managing the mall property for the new owner, an affiliate of New York Life Insurance Co . The mall's value in October was listed at $55M, compared to $184M just two years ago and $300M in 2008. Centennial Chief Operating Officer Whitney Livingston told Bisnow the new ownership team was drawn to the property because of its location, even though it has suffered from department store closures. "Dulles Town Center is in an incredible market," she said. "It's fantastic real estate, but it also suffers from some of the challenges many of the projects we are working on or have transformed have incurred. "  The primary problem with Dulles Town Center, as with many malls, is that it has too much retail space for what the market can support today, Livingston said. "The property is 1.3M SF, arguably 30% to 40% overbuilt, and I would say that was by pre-COVID standards," Livingston said. "Coming out of the pandemic, malls that were overbuilt will likely get even smaller than that. So it's a large project, and it's overbuilt. It was like many malls that were planned in the '80s and built in the '90s with four department stores." The new ownership team hasn't unveiled its redevelopment plans for Dulles Town Center yet, but Livingston said she is confident in saying it will have less retail than it does today. She said the team is looking at multifamily, office and hospitality options for the property. Gaithersburg 's Lakeforest Mall has lost three department stores: JCPenney, Lord & Taylor and Sears. Only Macy's remains open. WRS Real Estate Investments in July 2019 paid $22.5M  to acquire the mall's 47-acre core, not including the four department store properties. It is working on a financing package to acquire those properties, and last month it unveiled plans  for a major transformation of the 102-acre site. Courtesy of WRS Inc. A site plan of WRS Inc.'s vision for the 102-acre Lakeforest Mall site in Gaithersburg. The new owner plans to reduce the property's retail space from 1.1M SF to roughly 400K to 500K SF. It also plans to build at least 750 multifamily units, including townhouses, condos and apartments. "To have 1M SF of retail in that configuration, that time has sailed past us," WRS Realty Executive Vice President Kevin Rogers told Bisnow. Rogers said the plan would also reduce the number of surface parking spaces from around 7,000 to roughly 1,000, with the multifamily buildings featuring structured parking. "There is an awesome opportunity and demand from the marketplace to be here, to reposition the mall into something different from what it is today," Rogers said. "We have an opportunity in front of us to pretty dramatically alter what everyone sees over there and create a real community." The D.C. region has some malls that have been partially or entirely shuttered, and the owners have long been planning massive redevelopments. At Alexandria's Landmark Mall , the central portion of the property closed  in 2017, and as of last year, Sears was one of the only retailers remaining  open. Sears announced plans  to close the store in July. The Alexandria City Council adopted a long-term land-use plan for the area last year that envisions 5.6M SF of development for the 51-acre site. Howard Hughes , the mall's owner, told Bisnow last year it planned to build up to 2M SF in the first phase, but the developer has yet to move forward with the project, and some local officials have expressed doubt  that it will. At the mostly demolished  White Flint Mall in North Bethesda, owners Lerner and Tower Cos . have long been eyeing  a major redevelopment. But the project had been held up by a legal dispute  with Lord & Taylor, which was the only retailer remaining open at the property. Lord & Taylor announced  in August it would close the White Flint store. The former site of Prince George's County's Landover Mall, which has been demolished, has been eyed  for redevelopment for years, and the 80-acre site was one of the finalists for the proposed FBI headquarters relocation. After the government scrapped  that search, owner Lerner put the property up for sale  in 2018. The D.C. area has other malls that have continued to thrive as popular regional shopping destinations, but that isn't stopping owners from pursuing major redevelopments. Westfield Montgomery in Bethesda has lost one department store, Sears, but it remains one of the best-performing properties in Unibail-Rodamco-Westfield 's portfolio, URW Vice President of Development Stephen Fluhr said. The company owns  124 shopping centers around the world. Even as the property remains healthy, the owner is using the department store closing as an opportunity to launch a major redevelopment project. Fluhr said it has envisioned adding more uses to the property for years and welcomed the Sears closure as an opportunity to kick that off. "At the Montgomery site in particular, we wanted the opportunity to free up the site to do what we wanted to do there from a densification perspective," Fluhr said of the Sears parcel. "You take that off the site, and you use not much more dirt to put a concentrated development on that side of the property as a first step that you grow off." An aerial rendering of the phased development planned for the Westfield Montgomery mall. URW received approval  from the Montgomery County Planning Board in July for nearly 3M SF of development on the site, including 717 residential units. The first phase of the project would demolish the two vacant Sears buildings and construct a 100-foot-tall building with 413 residential units. It would also build a four-level, 135K SF fitness center and 128K SF of new retail in an external plaza. Fluhr said it sees the development as an opportunity to complement the existing retail and not replace the mall, which he sees as a top regional destination. "Every time we've gotten space back at centers like Montgomery, we see it as an opportunity to reimagine," Fluhr said. "We've said, 'OK what can we do on the properties that doesn't replace the mall?' That is not the goal with our flagship assets. The goal with our flagship assets is, 'How do we make a great mall even better?'" A similar project was proposed in July  at Prince George's County's Bowie Town Center mall, where the Sears closed last year. But in that case, the party pushing the redevelopment was Sears' real estate spinoff Seritage Growth Properties, which pitched an 800-unit redevelopment for the vacant store site. While department store vacancies can hurt foot traffic, Ward said it can often be a benefit to owners of otherwise well-positioned malls when a department store closes. "From an ownership standpoint, one of the big benefits is department stores often own the properties at a cheap basis or are paying cheap rent, so if the landlord is losing a department store, they have the ability to increase their income substantially," Ward said. "Economically, it's not a bad thing for them to get these stores back." Jellinek said owners with strong balance sheets and a willingness to invest in their properties can use department store closures as a way to improve their malls. "If the ownership has the capital and the skill, then they can attack an empty anchor store and view it as a positive," Jellinek said. "If you have a decent property in a good area with ownership that has deep pockets, they could view that as an opportunity and increase revenue." But experts say not all properties will be able to turn vacancies into a positive. They agree the mall sector has been overbuilt, and over the long term, the weaker malls will not survive. "If you have roughly 1,000 malls in America, do we see the further acceleration into default of the bottom 200? I think that's reasonable over the next two or three years," Jaggi said. "Over the next couple years we're going to see the stronger, well-capitalized malls will get even stronger and better, and you will see the survival of the fittest." Ward said he expects a long-term consolidation of the mall market in the D.C. region. But even the properties that don't survive will still be large, well-located assets that will present opportunities for major developments. "Right now we don't need as many malls as we have, which means there are going to be losers that don't make it through," Ward said. "But that's not necessarily a bad thing. It's all well-positioned real estate. It just opens an opportunity to be something that caters better to the modern market." Contact Jon Banister at jon.banister@bisnow.com

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