Converting Retail Uses To Residential?

For many years in California, one of the toughest sales to a city was the proposal to redevelop a shopping center property into a residential use.  The cities always felt that the sales taxes generated by shopping centers outweighed the city’s share of the property tax.  I am not sure this was always fact, but nevertheless it was hard to get support for rezoning the property.

But in recent years, with the growing online retail business, we are starting to see more and more vacancies in these shopping centers.  Even the large department stores, which have been the anchors and stalwarts in the regional malls, are starting to close with more regularity.  And without new users to take up the space, the property owners and cities are staring at vacant buildings that generate no revenue and no sales tax.  We are now starting to see more residential uses on these commercial properties that maybe had no chance 10 – 15 years ago.

With Amazon and other online retailers grabbing more and more market share, I think many of these cities are beginning to understand that the shopping centers of yesteryear may never be the same again.  One of the good arguments for the rezone is that by adding residential uses, more rooftops means more new patrons to support the retail uses that remain.  The result would be more sales taxes because you have added more consumers to the marketplace.  As well, with more of these shopping centers focused on lifestyle and entertainment uses, I think the cities feel better about creating higher energy uses in place of a vacant building.

It is not to say that a city is going to support your proposal, but I think there is more opportunity for converting these uses than ever before.  And it always helps to go in with a good story!

As always, we welcome your comments and questions below.

John Kaye has over 30 years experience within the land development and homebuilding industries, having held senior management positions with The Irvine Company, Koll Real Estate Group, and Brookfield Homes. As a developer, John has overseen the land acquisition, entitlements, and development of master planned communities, residential tracts, urban infill sites, and land assemblages. His experience and skill sets include land acquisition, land brokerage, project management, market analysis, finance, and strategic planning.

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