Second of two parts.
A year and a half after Valley West Mall went into foreclosure and more than a year after a judge approved its auction by the Polk County Sheriff’s Office, the mall continues to operate, entering another holiday season with two of three anchor tenant spots vacant.
Concerned that the moribund mall could stifle an aging area that once was the Des Moines metro’s prime commercial corridor, the city of West Des Moines is pushing for redevelopment of the 58-acre property overlooking Interstate 235 and University Avenue.
“We don’t want to see that area die on the vine,” said Ryan Moffatt, West Des Moines’ economic development director.
But no buyer has materialized since U.S. Bank foreclosed on a $42 million loan to the mall’s then owner, Watson Centers of Minneapolis, in June 2022, and a Polk County judge the following October approved a plan for auctioning the mall. Instead of going forward with the auction, the court-appointed receiver, Los Angeles-based Krista Freitag, has allowed the mall to continue operating, and there are even a few small businesses listed on its website as “opening soon.”
Moffatt said he met with Freitag, mall management and leasing agent Spinoso Real Estate Group on Nov. 8 to discuss the future of the site. In apparent acknowledgment that the mall’s days are numbered, the Polk County Assessor’s Office this year valued its buildings at just $100.
Moffatt said the group agreed that there is more retail space at the mall than the market can bear. The group also agreed that the mall operators cannot keep operating like everything is OK, he said.
With West Bank building its new headquarters between the mall and the interstate, next to the also-new headquarters of health care plan administrator ClaimDOC, the city believes the site is ripe for reinvestment and is willing to provide tax-increment financing and other incentives should a buyer step forward, Moffatt said.
Valley West Mall in its current form hinders future growth on University Avenue, according to a report the city and neighboring Clive issued in late 2022. It called the mall a “liability, with fading occupancy and an aging tenant mix” in need of redevelopment.
“It’s a good piece of real estate,” Moffatt said, adding, “We’re going to continue to work away and do what we can realistically to facilitate redevelopment there. If we did get a chance for redevelopment, I think we would get aggressive, as long as it met the city’s visions and goals.”
Freitag, the receiver, did not respond to requests for comment.
Valley West, once central Iowa’s ‘premier mall,’ falls on hard times
Situated in a then-fast-growing part of the burgeoning suburban city, Valley West opened in 1975. It quickly became what Clyde Evans, who retired as West Des Moines’ economic development director in August, called the “premier mall” in the metro, supplanting the older Merle Hay and Southridge malls in Des Moines.
Built for $26 million ― more than $140 million at today’s prices ― it had 855,000 square feet of shopping space and room for 90 shops in addition to its three anchor tenants.
It was among the busiest malls in the Midwest. In 2000, it had 40,000 visitors per day and employed 3,500 people.
“Anytime we had the boys basketball tournament, girls basketball tournament, the wrestling tournament, all these kids from outlying Iowa would come here to shop for prom dresses or shop or hang out,” Evans said.
Then came construction of Jordan Creek Town Center, a $200 million “lifestyle center” just 5 miles to the west, with entertainment, free-standing restaurants like P.F. Chang’s and even hotels on outlying lots. A two-level Scheels sporting goods store occupies one of the mall’s three anchor spaces instead of a traditional department store.
Watson Centers undertook an $18 million renovation of Valley West in 2002 and 2003, aimed at preparing the mall to compete. It added skylights, glass railings, new flooring, a waterfall and a glass elevator. But Evans said Watson Centers passed on other opportunities to keep up with Jordan Creek because it did not want to spend the money, calling the renovations “a half effort.”
“Valley West Mall could have done a much better job than they did in terms of positioning themselves,” he said. “They knew for a while that Jordan Creek was coming. They had some opportunities to do some things at that site, and they passed on it.”
By the time Jordan Creek opened in 2004, the retail landscape also was under growing pressure from other forces, including changing shopper preferences and the rise of online retailing.
A major blow for Valley West came in 2018, when the Younkers department store chain liquidated, shutting down one of the mall’s anchor stores. In 2019, the last year for which data is available, Valley West was 75% occupied, about 15% below the national average
Then, in 2022, a second anchor, Von Maur, moved to occupy an empty Younkers site at Jordan Creek, which has maintained a 99% occupancy rate.
Valley West’s sole remaining anchor amid a sea of largely empty parking lots is JCPenney, which has had struggles of its own, undergoing bankruptcy reorganization in 2020. Its stock was selling for about 20 cents a share when it went private after emerging from bankruptcy, and its future remains unclear.
There are still a few mall staples at Valley West. Eddie Bauer and Victoria’s Secret offer high-end fashion and lingerie. On the north end of the mall, Pro Image displays pricey Colorado Rockies, Chicago White Sox and Montreal Expos jerseys in its windows. Another high-end sports apparel store, Champs Sports, sits about 100 feet away.
And some local retailers are hanging in. Ton and David Stam launched the American branch of their family’s Belgian-based Chocolaterie Stam from a kiosk at Valley West and eventually opened a full-fledged store there. They say they’re committed to continue operating it, even while opening a new location at Jordan Creek.
In addition, since Spinoso became the leasing agent, 10 to 15 new stores have opened, though Moffatt said some may not be what he would term “high-quality” tenants.
Signs of the mall’s struggles are readily apparent. Tarps cover entrances to the old Younkers space, and this fall the Kelly green carpet and elegant red marble floors of the Von Maur space, where a pianist once serenaded shoppers, housed a pop-up Spirit Halloween store. Another pop-up, a makeshift drive-in theater, occupies the Younkers store’s otherwise vacant parking lot in warmer weather.
Plans to redevelop Valley West Mall fail to move ahead
With the traditional mall clearly failing, Watson Centers in 2019 tried to rebrand it as Valley West Commons, seeking to reimagine it as a lifestyle center in the mode of Jordan Creek, with restaurants, entertainment and apartments. That plan went nowhere.
Two years later, Watson and the city announced plans to demolish the 200,000 square-foot Younkers space and construct a 240-unit apartment building, new retail spaces and an 18,000-square-foot restaurant. Under the proposal, the JCPenney building would have been demolished to create office and retail space with underground parking. A five-story hotel was slated for the north end of the property, and the plan also called for construction of an office building.
Watson Centers was ready to spend $262 million on the project. But to leverage the necessary financing, the city sought $30 million in Iowa tax incentives. It fell short in the competition with projects including Merle Hay Mall’s proposal to turn its empty Younkers store into a hockey arena for the Des Moines Buccaneers.
“I don’t think they had a bad conceptual plan,” Aaron Hyde, a retail industry analyst at JLL Brokerage in Des Moines, told the Des Moines Business Record. “They just couldn’t get it over the finish line.”
The foreclosure followed.
During the Nov. 8 meeting, the city and the mall’s leaders kicked around ideas, such as leaving portions of the mall to house retailers while new development occupies out lots, Moffatt said. But he said that without investors, “I think we can realistically acknowledge that the mall is going to continue to operate as is for the foreseeable future until we can get all the partners lined up to advance this to the next stage for development.”
Retail industry analyst: ‘It’s one of the best pieces of land’
Valley West’s site has the potential to become a “downtown-like focal point” for the University Avenue corridor shared by Clive and West Des Moines, the study the cities released in late 2022 found.
The ClaimDOC and West Bank projects point to the potential.
“Our commercial Realtor thought we were insane,” Bruce Hansen, ClaimDOC executive vice president, said in a news release about the company’s $3.9 million investment in converting a former Fitness World club into executive offices. “People want to work in spaces that are interesting and where they don’t dread going into work each day. We wanted something different and something unique. This space fits the bill.”
Next door, West Bank’s 72,000-square-foot, four-story headquarters is rising where a vacant strip mall sat, advertising the bank’s prominence to the thousands of drivers who pass by on I-235 daily. West Bank chose to redevelop a dilapidated site rather than build on undeveloped land, even though it cost more, CEO Dave Nelson said last year.
“We think when you can turn something blighted into something special, that’s a strong example of community leadership,” Nelson said.
Less than a mile to the east, the recently renovated Westowne Center occupies the northwest corner of the I-235 interchange with 22nd Avenue. And while the University Avenue corridor has some notable vacancies, including a recently closed Bed, Bath & Beyond store, other commercial properties boast a healthy roster of tenants, including the Water Tower Place Shopping Center, which is home to the metro’s only Whole Foods store.
Hyde, the JLL analyst, noted the site’s advantages, sitting in a prime spot off I-235, with easy access to nearby Interstate 35/80.
“I’d argue just from a pure real estate standpoint, it’s one of the best pieces of land,” Hyde told the Des Moines Register. “It’s smack dab in the middle of the city.”
For West Des Moines, having the property remain in limbo is costly. Property tax records show that in 2003 Valley West Mall paid $3.1 million in property taxes, adjusted for inflation, on a valuation of about $100 million. By 2022 the tax bill had fallen 83% to $522,165 on a valuation of $32.9 million. With the value for the next tax year set below $20 million after the buildings were devalued, revenues will continue their drastic decline.
The land, assessed at $19.5 million, is more valuable being redeveloped, Hyde said.
“It’s going to be an expensive” restoration, he said. “I think there’s people out there who want to take a swing at it, but right now it’s just sort of tied up with the receiver. The bank is going to have to figure out what to do.”
Without redevelopment, ‘there’s an emptying or hollowing out that could occur’
Because property tax revenues at Valley West have fallen off so sharply, redeveloping the site is one of the city’s top economic development priorities, Moffatt said. Several state tax incentives or abatements could be used to move the project along, he said.
At the local level, West Des Moines’ primary financial incentive is tax increment financing, Moffatt said. In a TIF, the property tax revenues within a designated district are dedicated to supporting its redevelopment.
Or the city could use TIF funding to pay for infrastructure improvements. In 2014, when Microsoft agreed to build a data center in West Des Moines, the city supplemented $20.3 million in state tax credits with $87 million worth of infrastructure improvements by using tax increment financing to pay for fiber optic lines, roads and utility connections.
When Jordan Creek Town Center was built in an undeveloped section of West Des Moines in the early 2000s, the city similarly set up a TIF for infrastructure improvements to the area around the mall.
“If we don’t do anything to help remedy the issue out there, there’s an emptying or hollowing out that could occur in that area,” Moffatt said of Valley West.
Any project would likely cost “multihundreds of millions of dollars,” he said.
“It’s probably a risky play for a developer, but there’s a lot of developers around the country that specialize in doing this kind of thing,” he said. “At some point we’re hopeful the court-appointed receiver finds the right partner here.”
What could be built at the Valley West Mall site?
Any new development would have components of previous plans: entertainment, retail, office space and housing, Moffatt said. Scenarios are on the table where portions of the mall are still active or where development starts with a cleared site, he said, but added that he favors a “more substantial redevelopment of that property.”
Currently the Valley West site is oriented like a traditional mall campus, with buildings set far back from roads in oceans of parking lots. Previous redevelopment plans left that layout undisturbed. But the University Avenue study says Valley West should flip its orientation so that retail and entertainment businesses are on streets, and parking spaces and offices are on the interior.
That would make the site more inviting and pedestrian friendly and help create an “18 hour community” active outside of traditional business hours, the study said.
Housing would be a major component of any plan, according to Moffatt and the study. High-density multifamily buildings would likely comprise most of it, but some medium-density townhomes could be built, he said. Drainage is poor along University Avenue because stormwater management was not a required part of building plans in the 1970s, so a retention pond and park also could be built, according to the study.
Attractions like an indoor skydiving facility or Topgolf-like venue will be important, Moffatt and Hyde said.
“Some of the attraction stuff has already gone to Jordan Creek, or in the case of the concert venue, gone to Waukee,” Moffatt said, referring to the Topgolf climate-controlled driving range slated for construction near Jordan Creek and Waukee’s new Vibrant Music Hall. “But could there be something else? We think that longer-term redevelopment that does provide that mix of uses is going to be the best way for us to go.”
Whatever comes next, Valley West should not try to replicate Jordan Creek, the University Avenue study said.
“The key to success is differentiation,” the study said. “This project needs to be something different in order to give consumers a reason to come, which generates sales, which in turn gives merchants a reason to want to locate here.”
Philip Joens covers retail, real estate and RAGBRAI for the Des Moines Register. He can be reached at 515-284-8184, firstname.lastname@example.org or on Twitter @Philip_Joens.