Chapel Hills Mall owner buys vacant Kmart building

The owner of the Chapel Hills Mall has bought the vacant Kmart space on the mall’s east side in what retail experts say could be a key step forward for the aging retail center as it competes with trendier shopping areas elsewhere in Colorado Springs.

A limited liability company controlled by New York-based Garrison Investment Group paid $5 million this month for the 88,000-square-foot Kmart space, which had been owned by a New Jersey partnership, according to El Paso County land records. The store has been vacant since 2009.

The purchase gives Garrison greater flexibility as it considers plans for the mall, said Victoria Harley, Chapel Hills’ general manager.

“It just gives us the opportunity to control what we want to do in the future, as opposed to Kmart leasing it to someone that maybe doesn’t fit with our plan,” she said.

Harley said it’s too early to know what might happen to the space — whether it will be leased to one or more retailers, remodeled, torn down or the like.

The 1.2 million-square-foot Chapel Hills Mall, which opened in 1982 northeast of Academy and Briargate boulevards on the Springs’ north side, is one of the city’s two regional malls along with The Citadel. Chapel Hills’ anchors include Sears, Dillard’s, Macy’s, J.C. Penney, Dick’s Sporting Goods and Burlington Coat Factory.

Like other retail centers, Chapel Hills has taken its lumps as a result of the economic downturn over the past few years. Borders Books & Music closed last year after the chain went out of business; Old Navy moved from the mall to a retail center across the street; and previous mall owner and original developer General Growth Properties filed for bankruptcy protection three years ago.

Likewise, Chapel Hills faces competition from the Promenade Shops at Briargate and retail centers along Powers Boulevard.

But Garrison’s purchase of the Kmart space could pay off down the road, say two commercial real estate brokers who specialize in retail.

As Garrison considers mall improvements, it’s smarter to include Kmart as part of a big-picture redevelopment strategy, said Patrick Kerscher of Landmark Commercial Group in Colorado Springs.

“It just make sense for the mall to control their own destiny,” Kerscher said. “That way, they don’t have some third party out there that could cause trouble with whatever they’re trying to redevelop.”

Kerscher also said owning Kmart makes it easier for mall owners to market the overall property.

“It speaks to the commitment of the ownership,” he said. “They’re basically saying, ‘we’re going to take on $5 million more of a risk’.”  Such a move could be attractive to retailers, Kerscher said.

Jay Carlson of Front Range Commercial said many mall owners with multiple properties have strong relationships with retailers. Owning Kmart gives Garrison leverage, he said; it can negotiate with a retailer to take on all or part of Kmart in exchange for the same retailer leasing space in a property Garrison might control elsewhere.

Expect Garrison to make substantial improvements to the Kmart space, Kerscher and Carlson said.

Previously, the Kmart store was only accessible via a mall entrance, unlike other anchors that have separate entrances. Kerscher said a separate entrance on the building’s east side would make sense because plenty of parking is available on that side.

The building’s south side, which includes several garage doors, would be ripe for a new, more attractive building facade — perhaps a glass exterior similar to mall anchor Dick’s Sporting Goods, he said.

Carlson said he wouldn’t be surprised if the Kmart space is torn down. That way, a store could be built with hopes of attracting a higher-end retailer to link Macy’s and Dillard’s, he said.

“I never thought that Kmart was a good fit for that mall, anyway,” Carlson said. “In my mind, it didn’t fit the design for the rest of the mall. You had some better, higher-end anchors out there than Kmart. I think they’d really be able to change the look and clientele of that mall with the right user.”

A partnership that included Garrison and Coyote Management LP of suburban Dallas paid $71.5 million in June 2011 for Chapel Hills, or $40.7 million less than what former owner General Growth Properties owed on it early last year.

Coyote, however, no longer is part of the mall’s management, Harley said. Instead, Chicago-based Urban Retail Properties now manages the mall.

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Contact Rich Laden: 636-0228 Twitter @richladen

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