The nation's biggest mall owner has explored selling or converting some of its properties for data center use, a new option for ailing retail hubs. But for now, Simon Property Group isn't swapping shopping carts for high-speed computer servers.
The Indianapolis-based real estate investment trust examined over a year ago whether it had an opportunity to take advantage of the boom in data centers, the entities helping to drive the explosive growth in artificial intelligence. At this juncture, the REIT didn't see any options that would work for it, according to President and CEO Eli Simon.
"Probably 18 months ago or so, we really scoured our portfolio ... [for] malls that might have had a lower-growth profile — or potentially excess land at some other malls — to see is there anywhere that makes sense for a data center," Simon said during its first-quarter earnings call. "We talked to various data center operators. And we couldn't find anything that made sense."
There are some — but not many — examples of struggling U.S. malls being transformed into data centers. But that may change as the need for data center grows with the boom in AI and as retail landlords grapple with what to do with the obsolete properties.
For example, the shuttered Eastgate Consumer Mall in Indianapolis was converted into a data center and office campus. And the former Bon Marché Mall in Baton Rouge, Louisiana, has become a data center hub, the Bon Carré Technology Center.
And in some cases, vacant anchor space at malls is being used for data centers. A former Boscov’s department store at Marley Station Mall in Glen Burnie, Maryland, was converted into an AiNET data center. Similarly, a former Sears store at Indian Mound Mall in Heath, Ohio, is now a training ground for skilled electricians whose jobs are linked to the high demand for data centers.
Mall conversions
"The rise of e-commerce and demand for data centers has led to the conversion of some B malls into last-mile distribution centers or tech hubs, especially in suburban areas with large footprints and access to transportation networks," Richard Latella, a Cushman & Wakefield executive managing director, wrote in a report last year. Class-B malls are second-tier, suburban shopping centers with average sales, an average of 11% vacancy rates and at least one anchor vacancy.
There are obstacles to mall-to-data-center transitions. Malls offer large spaces, but they may need structural improvements such as floor reinforcement to support heavy data center equipment. Their electrical capacity and cooling systems typically aren't enough to serve a data center and would need upgrading.
And the boom in data centers has sparked a national backlash from communities, including some in the Garden State, worried about their impact. Residents of Kenilworth, New Jersey, have been protesting cloud computing firm CoreWeave's plans to open a large AI data center on Merck's former campus. And in Andover, New Jersey, the township plans to introduce an ordinance to ban AI data centers.
The Simon Property earnings call was the first one conducted since David Simon, the REIT's chairman and CEO, passed away in March. His son Eli took over the reins of the company.
Alexander Goldfarb, a Piper Sandler analyst, asked Eli Simon whether the REIT had looked into "mini" data centers for its "excess holdings," or even converting an entire mall into a data center.
"So it's something we, with our team, look at relatively frequently," Simon said. "But to date, we have not found anything."
Even so, if the REIT "thought we could sell something and take cash and reinvest it elsewhere more accretively, we would do that 100%," he said.
"We haven't seen that to date," Simon added. "But again, if someone comes and says, 'Here's a big price for an asset' and we look at it and say there's a better use of that cash, we won't hesitate to sell."
In a note, Goldfarb mentioned what he called "other conference-call tidbits" from Simon Property.
"While there is no full-size data center potential, micro-data centers are a possibility as technology advances," Goldfarb wrote.