Demolishing a Mall to Start From Scratch

Demolishing a Mall to Start From Scratch

The New York Times

By HEIDI C. DANIEL

Block by block, a New York developer is demolishing a 300,000-square-foot shopping mall built in the late 1960’s in the heart of this city of 47,000 residents 16 miles north of Washington D.C.

The mall has stood as a symbol of a failed urban renewal project that has sapped life from the downtown core. To the north, vacant lots exist where mom and pop shops once stood.

The mall split the central business district in half, separating Victorian-era houses in the city’s historic West End neighborhood from Montgomery County’s executive offices and judicial center to the south. To the east is Rockville Pike, one of the major arteries through the county.

Shoppers from Washington and surrounding Maryland suburbs drive to Rockville Pike to shop at its many strip shopping centers and discount retailers. Many Rockville residents commute into the district to work. But downtown Rockville itself has little to draw people.

Rockville, which is in the middle of Montgomery County, covers 12 square miles. Twenty-five percent of the people living within a seven-mile radius of the mall are professionals earning an average of $83,000 per household. Half hold college degrees. The median price of a new house within this area is $320,000.

But the shopping center, built with Federal urban-renewal grants, was a competitive failure. Blight and decay in the area was one problem – and the factor that made the city eligible for urban renewal funds in the first place, since public officials had to provide evidence of blight and decay to get them.

In addition, said Dorn McGrath, a George Washington University urban planning professor, the city’s officials opted for an inappropriate design, a “massive structure that resembled a Maginot Line.” Local people called it a Berlin Wall dividing the city.

“It is ponderous, massive, inflexible, forbidding, defensive,” he said. “The interior was dark and ha rd to penetrate and the retailers stuck inside were lonesome.”

The new developer, Mitchell B. Rutter, president of Essex Capital Partners Ltd., has a different vision for the 7.7-acre site. He wants to turn it over the next 15 years or so into a true town center, with shops, restaurants, movie theaters, apartments and more than 1.2 million square feet of office space. The site has direct access to Metrorail, Washington’s subway system, and 468,000 people live within a seven-mile radius of it, he said.

Essex acquired the property two years ago from a Marine Midland Bank entity, Rockville Center Inc. Marine Midland had foreclosed on the former owner, and Mr. Rutter assumed more than $40 million in debt.

He said he expected to invest an additional $265 million in the project by the time it is completed.

The first task is to raze the mall and restore a traditional pattern of streets. The first street has already opened, although the completion of demolition is not expected until the end of the years. “The arteries are in place, we’re putting in the heart,” Mr. Rutter said.

The City of Rockville, Montgomery County and the state of Maryland have agreed to match what Essex spends on public infrastructure up to $6 million each, or 6 percent of total project costs. The streets will delineate five development blocks.

Mr. Rutter has approval to build more than 1.2 million square feet of office space, 200,000 square feet of retail, 2,600 below-grade parking spaces and a 117-unit apartment building.

After demolition, he said, he intends to develop 50,000 square feet of restaurants, shops and entertainment in a two-story retail pavilion. He is also hoping to develop 40,000 to 50,000 square feet of theaters underground, and 150,000 square feet of retail space at street level in office and residential buildings, as mandated by the county. The developer’s ambitions do not stop with commercial development. He also foresees residential construction across Maryland Avenue. He expects rents will be in line with market rates, which run $750 a month for a one-bedroom and $1,000 for a two-bedroom apartment.

In June, the company exercised a purchase option with the City of Rockville for a 1.6-acre parcel at the intersection of Middle Lane and Maryland Avenue, where Mr. Rutter says he will also build rental apartments, which would be a first for downtown Rockville although there has been condominium construction.

When or whether these visions will be realized is of course uncertain, but Mr. Rutter is obligated under his agreement with the city to do the demolition and build the roads, fountains and parks, he said. “There is no required time frame for the office development,” he said. “We’re only going to build with leases in place.”

The three blocks of office space are each zoned for 420,000 to 48,000 square feet of space. Mr. Rutter is contemplating structuring one of the blocks as a “trade association center” where associations could share conference space, an auditorium and printing facilities.

A natural user of office space in Rockville might be Federal agencies, though the General Services Administration, the Federal Government’s leasing agent. The agency typically prefers sites close to Metro stops and must lease in buildings that comply with the Americans With Disabilities Act and other applicable health and safety codes.

“Rockville does have the potential to be the next Bethesda,” said Robert Scheer, president of Scheer Partners Inc. commercial brokerage, referring to the commercial center after Rockville on the route south toward Washington. “But in order for Rockville to step up, it’s going to take a heck of a sell job, some speculative development and a long wait until some of the other areas dry up.”

Currently,. The office vacancy rate in the greater Rockville area is about 12 percent. But, within the immediate vicinity of Rockville Center, it drops to 6 percent. Mr. Scheer said companies already in the county included high-technology corporations and government contractors.

Historically, large corporate tenants have opted to be in the Democracy Boulevard area and now are considering Shady Grove and Research Boulevard, all concentrated office submarkets off Interstate 270, the major north-south thoroughfare through the county.

And the retail business went to Rockville Pike. In downtown Rockville, two developers tried and failed to compete for that business, after 180 small businesses had been moved out. The Rockville Commons mall opened in 1972. It was never more than 60 percent occupied, and its anchor tenant, Lansburgh’s department store, failed in the first six months. The mall closed in 1982 and the city sold the project to Eisinger Kilbane developers.

A few years later, Rockville commons was resurrected as the Rockville Metro Center. Parking was expanded inside and the shops moved outside to improve accessibility, but there was no frontage on a road or visibility from Rockville Pike, the well-traveled highway nearby. The mall remained 80 percent vacant, the few stores floundered and in 1991 Marine Midland foreclosed.

Because of the failed mall, people have been reluctant to make investments in downtown Rockville, Rockville officials say. Assessed values dropped $15 million in the 80’s, the Department of Economic Development reported.

“For the past 15 years, Rockville has had a suburban mall sitting in the middle of downtown,” said Mayor Jim Coyle. He is hoping the demolition and Mr. Rutter’s efforts will lead to something better.

© Essex Capital, 2012