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Amazon is snapping up disused shopping malls and turning them into fulfillment centers

"I see articles about Amazon building here and Amazon building there. I’m not sure any of us really fully understand the implications because it’s happening so so fast,” the resident of one such neighborhood said.
A woman works at a packing station at the 855,000-square-foot Amazon fulfillment center in Staten Island, N.Y., on Feb. 5, 2019.
A woman works at a packing station at the 855,000-square-foot Amazon fulfillment center in Staten Island, N.Y., on Feb. 5, 2019.Johannes Eisele / AFP via Getty Images file

Malls that buckled due to e-commerce or suffered during the pandemic are being given new life by the very entity that precipitated their decline — Amazon.

Over the last several months, the retail giant has gone on a shopping spree of its own, buying up disused malls across the country and turning them into distribution centers.

In March, Amazon won approval to turn a mall in Baton Rouge, Louisiana, into a 3.4 million-square-foot distribution building, and a mall in Knoxville, Tennessee, into a 220,000-square-foot distribution center. In December, the local planning board in Worcester, Massachusetts, signed off on Amazon's request to convert the city's Greendale Mall into a 121,000-square-foot distribution center.

Between 2016 and 2019, Amazon converted around 25 shopping malls, according to an analysis by Coresight Research. Last year, it was reportedly in talks with Simon Property Group, the country's biggest mall owner, to convert bankrupt JCPenney and Sears department stores into fulfillment centers. Target and Walmart have also turned some space in their own stores into mini fulfillment centers.

The Knoxville Center mall in Knoxville, Tenn.Google

“The reality is that the cash flow at these lower-quality malls is declining rapidly,” said Vince Tibone, lead retail and industrial analyst at the real estate analytics firm Green Street. “You have to decide, ‘Do I want to do something myself to invest a lot of money to transform this dead retail into thriving retail or put up offices?’ Selling a dead mall as land is a more attractive option.”

About 50 percent of mall-based department stores could permanently close by the end of 2021, according to Green Street. The majority of these mall closures are expected to be lower-tier shopping centers that make less than $320 per square foot of space, which makes it difficult to cover their mortgages, Tibone said.

Malls are already struggling to keep up with mortgage debt. Macerich, which runs about 50 shopping centers across the country, announced in February it is restructuring to rein in $1.5 billion in debt that comes due in July. CBL Properties, whose major tenants include Victoria's Secret and Foot Locker, reached an agreement in March with lenders to shave $1.6 billion from its balance sheet.

"Selling a dead mall as land is a more attractive option.”

Nikki Forman, a spokesperson for Amazon, declined to comment on its future plans to build on dead mall real estate. But she said the company is “constantly exploring new locations and weighing a variety of factors when deciding where to develop future sites to best serve customers.”

Local hubs

Amazon’s signature Prime Delivery depends on its national network of more than 100 fulfillment centers and roughly 1 million workers to get packages to a customer's front door within a day — or even an hour.

The pandemic has only accelerated Amazon’s retail business, as stores closed and people hunkered down at home to curb coronavirus infections. Net sales increased 37 percent in 2020 compared to the year before, leading the company to invest roughly $44 billion in capital expenditures, Brian Olsavsky, Amazon’s chief financial officer, told investors in February. Its fulfillment center footprint grew by 50 percent in 2020 compared to the year before, he said.

“In a [fulfillment center] world, it's hard to turn that capacity on quickly, so it generally means you may have to overbuild to protect the customer experience,” he said.

Cortana Mall in Baton Rouge will be Amazon's third distribution center in the area. Owned by Moonbeam Capital Investments and located in the east end of the city at the intersection of two major highways, the 1.4 million-square-foot mall has been on the decline since the years following the Great Recession. The mall was put on the market and taken off in 2018 because of a lack of interest. At the beginning of this year, the mall’s last remaining store, Dillard's Clearance Center, announced it would close.

“A lot of these malls that are going to the block, in a lot of cases the mortgage debt on the mall is worth more than the mall,” Alex Goldfarb, a senior research analyst at Piper Sandler, said. “You could easily have a mall that’s $50 million to $100 million in mortgage debt that gets sold for $20 million because there really aren't any tenants left and you’re selling for land value.”

Amazon's fulfillment center footprint grew by 50 percent in 2020.

Amazon bought the Cortana Mall property earlier this year for about $17 million, according to the East Baton Rouge Clerk of Court. That amounts to only about $6 a square foot. Additionally, the East Baton Rouge Metro Council approved a $35 million tax abatement for Seefried Properties to develop the project on behalf of Amazon.

While Moonbeam did not respond to NBC News' request for comment, Baton Rouge Mayor Sharon Weston Broome said in a statement in March that she is in full support of the rezoning of the development of the former Cortana Mall.

“This generational project will create 1,000 new jobs for area residents,” she said. “Today's rezoning of Cortana Mall will be critical to moving this project forward."

Angry locals

But in Worcester, Massachusetts, where Amazon is building a distribution center on the site of a former mall, the company has received community pushback. At a planning commission meeting in December, dozens of people testified against the development, raising concerns about traffic, noise, labor conditions, emissions, impact on small businesses and the company’s anti-union efforts.

“Is this going to be community development, and what commitments is Amazon going to make to our community?” Kevin Ksen, a 40-year resident of Worcester who spoke at the meeting, told NBC News. “The response from most of us was, ‘What are you going to do in terms of workers to make sure they’re treated well, and are you going to be hiring union workers on these projects?’”

Jessica Schumer, an economic development manager with Amazon, said at the December meeting that the distribution center will create 70 new jobs that pay at least $15 an hour with full benefits. She also noted several examples of Amazon’s donations to local school districts and housing organizations. At the end of the month, Amazon got the green light to build.

Greendale Mall in Worcester, Mass.Google

Ksen said in an interview that he had hoped Finard Properties, the mall owner, would go through with its announced plans to transform the fading shopping center into a mixed-use location with shopping and housing. Now, with Amazon coming to town, he’s worried that the community won’t reap any benefits.

“I’ve seen the economic development happen to our community — it’s frustrating on a local level,” he said. “But, at the same time, I see a regular list of articles about Amazon building here and Amazon building there. I’m not sure any of us really fully understand the implications because it’s happening so so fast.”

Other benefits

Back in Tennessee, Knox County Mayor Glenn Jacobs said the new Amazon last mile distribution center is a welcome relief for the city, which had been losing money on the property. As sales waned, the mall’s owner, Knoxville Partners, became delinquent on roughly $600,000 in property taxes.

Amazon plans to hire 700 workers for the distribution center and has not requested a tax abatement for the project, he said.

While the county won’t earn as much property tax on a warehouse property compared to a mall, Jacobs said Amazon will have a broader impact on the local economy.

“It is the indirect impact of people who work there having more money in their pockets and spending more money and buying homes or renting apartments that will lead to tax increases that we have direct benefit from,” he said.