Shopping mall operator Westfield has decided to give up its prestigious San Francisco mall following a closure announcement by Nordstrom. The city’s largest shopping center experienced a drastic decline in foot traffic and sales during the pandemic, leading the company to halt payments on a $558 million loan.
Westfield, in partnership with Brookfield Properties, is now initiating the process of transferring control of the mall at 865 Market St. to its lender.
“For more than 20 years, Westfield has proudly and successfully operated San Francisco Centre, investing significantly over that time in the vitality of the property. Given the challenging operating conditions in downtown San Francisco, which have led to declines in sales, occupancy, and foot traffic, we have made the difficult decision to begin the process to transfer management of the shopping center to our lender to allow them to appoint a receiver to operate the property going forward,” the company said.
The closure of Nordstrom, occupying a vast 312,000 square feet within the mall, will occur in August after 35 years when its lease expires. Following Nordstrom’s departure, the mall will only be 55% leased, significantly lower than the average 93% lease rate of other Westfield malls across the United States. The future operations of the mall, determined by the receiver, are expected to remain open during the foreclosure process, as is typical for retail properties.
Westfield’s decision adds to the economic turmoil affecting the Powell Street area. Park Hotels & Resorts, responsible for the nearby Hilton Union Square and Parc 55 hotels, also ceased payments on a $725 million mortgage and plans to surrender them. In addition, Old Navy is set to close its doors nearby, and the tragic shooting of Banko Brown by a Walgreens security guard in the same vicinity underscores the existing crime and public safety challenges.
Westfield cited “unsafe conditions” and a “lack of enforcement against rampant criminal activity” as contributing factors to Nordstrom’s departure from the mall. It emphasized that the poor performance in San Francisco was an exception to the success of its other properties. In 2019, San Francisco Centre generated $455 million in sales, but in 2022, sales decreased by about a third to $298 million between January and December.
Interestingly, Westfield’s California flagship mall and Westfield Valley Fair in San Jose and Santa Clara experienced significant sales growth during the same period. Sales at the latter increased by 66% following the opening of the Eataly food hall. Moreover, Westfield’s U.S. sales recorded a 23% increase overall.
San Francisco’s foot traffic suffered a significant blow, with only 5.6 million visits between January and December 2022, compared to 9.7 million visits in 2019—an alarming drop of over 42%. In contrast, foot traffic across other Westfield-owned U.S. malls only decreased by 2%.
Westfield’s parent company, Unibail-Rodamco-Westfield, previously announced its intention to sell all of its U.S. malls and focus on European operations. It currently owns 18 malls in the United States after completing some sales.
The San Francisco mall is not without further challenges, as additional leases are set to expire soon. Century Theaters’ 52,000-square-foot lease expires in September, and H&M’s 25,289-square-foot lease expires in January 2024.
The decline of downtown San Francisco and the nearby Mid-Market area can be attributed to factors such as remote work, a decline in tourism, and safety concerns, which have led to defaults and foreclosures for offices, apartment buildings, and hotels.
The situation surrounding the Westfield mall reflects the financial distress faced by the company in other markets as well. In January, Westfield missed a payment on a $195 million loan tied to Valencia Town Center in Southern California. The company has not provided an update regarding its discussions with the lender. Additionally, it had to relinquish four Florida malls due to foreclosures earlier in the pandemic.
As midday approached on Monday, Westfield mall appeared eerily quiet and largely empty. Tine Skov, a tourist from Denmark, expressed her surprise at the absence of shoppers, stating, “There are a lot of expensive shops but there’s nobody in them.” Skov, although disappointed with the current situation, intends to return for another visit, hoping that the city will regain its liveliness.
Gary Hageman, the general manager of the Hotel Triton in Union Square, who frequently visits the mall for meals and shopping, attributes its struggles to a combination of factors. These include the growing popularity of online shopping, the reluctance of people to return to downtown offices, and the challenges posed by homelessness and drug use.
The impact of Westfield’s decision on the San Francisco mall highlights the ongoing challenges faced by businesses in the region, urging stakeholders to address the underlying issues affecting the area’s economy and vitality.
Information for this briefing was found via San Francisco Chronicle and the sources mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.
