The start of foreclosure proceedings against Valley West Mall, a once shiny shopping destination for those in the Des Moines area and beyond, was not a surprise to retail observers who for years have watched the West Des Moines center fade from shoppers’ memories.
The questions now being asked are who will purchase the nearly 60-acre parcel and what will they do with it.
“It’s going to have to be somebody willing to have patience and spend a lot of money to redevelop it,” said Darin Ferguson, president of Ferguson Commercial Real Estate Services in West Des Moines. “Unfortunately, there’s not a lot of easy solutions to making this a vibrant [property] again.”
U.S. Bank on May 18 filed a foreclosure petition in Polk County District Court against Valley West Mall, located at 1551 Valley West Drive. In the petition, the bank alleged that mall owner Watson Centers Inc. had not made loan and other required payments since May 6, 2021. Watson Centers, located in Minneapolis, owes $3.49 million in missed payments, according to the filing.
The bank asked the court to appoint a receiver to oversee the property, including managing rent payments. It also asked the court to allow the property to be sold after the court enters a judgment, unless Watson Centers seeks a delay.
In a letter to Watson Centers dated April 26, 2022, U.S. Bank wrote that the payoff of the loan totaled over $43.2 million.
The Business Record did not receive a response for comment from Watson Centers.
Mall’s struggles anticipated
While the filing of the foreclosure petition has been anticipated for some time, apprehension exists over who might become Valley West’s new owner.
“It can go one of two ways,” said Clyde Evans, West Des Moines’ community and economic development director. “Someone who is well capitalized and can come in and do a major redevelopment of the site. Or, you can get somebody come in that tries to buy it on pennies on the dollar, doesn’t plan to invest any money in the property and just tries to suck everything out of it.”
Evans said he’s hopeful the property will be bought by a group interested in redeveloping the site, which has access to Interstate Highway 235 and is a midway point between downtown Des Moines and Jordan Creek Parkway.
Areas surrounding Valley West Mall are undergoing a renaissance of sorts, Evans and others said. To the east, Westowne Shopping Center at 1400 22nd St. in West Des Moines is undergoing a multimillion-dollar face-lift that is attracting new tenants including Floor & Decor and Boot Barn. To the northwest, Westridge Shopping Center has recently added new tenants including Burlington department store, David’s Bridal and, in June, Joann Fabric and Crafts. To the south, the medical claim auditing and advocacy company ClaimDoc bought property at 3200 Westown Parkway that previously was home to a fitness center and spent more than $3.8 million renovating the building.
Earlier this year, West Bank purchased 7.5 acres immediately south of Valley West Mall where a mostly empty neighborhood shopping center, vacant restaurant building and three other structures are located. The buildings will be razed to make room for a new four-story building that will serve as the bank’s headquarters.
Instead of “very tired 30-something-year-old retail buildings there, you’re going to have a new state-of-the-art corporate facility,” Ferguson said. “That’s going to be a big drawing point for any potential buyers of the mall.”
Valley West’s history
Valley West Mall opened in 1975, and by March 1977 it had three anchors: department stores Brandeis (later acquired by Younkers), Von Maur and J.C. Penney. For nearly three decades, the 1,164,314-square-foot regional shopping center flourished.
That changed after the opening in 2004 of Jordan Creek Town Center, another regional shopping center also located in West Des Moines. Retailers followed the shoppers who flocked to the sparkling new mall.
“Jordan Creek was just too close to Valley West,” said Richard Hurd, president of Hurd Real Estate in West Des Moines. “You knew it was going to choke [Valley West] off and that it was just a matter of time before it happened.”
In 2007, Valley West’s store directory listed 117 tenants. The assessed valuation of the nearly 60-acre parcel was $70.2 million, down 35% from just two years earlier, according to the Polk County assessor.
As the march to Jordan Creek and surrounding areas continued, properties near Valley West lost tenants. Hurd said his company sold properties in close proximity to Valley West, including Indian Hills Center at 9755 University Ave. in Clive.
“We were worried about what was going to happen,” Hurd said. “It’s still a good area … but it’s an area that’s in transition because the center of the [Des Moines-area retail] universe has moved further west, and that’s a reality.”
Valley West Mall’s collapse is not a unique occurrence. Owners of regional shopping centers nationwide are increasingly walking away from poorly performing properties and handing them over to financial lenders. In the past three years, Simon Property Group, a major mall real estate investment trust, let foreclosures proceed on at least three mall properties. Other regional mall owners have taken similar steps.
A 2021 analysis by Bloomberg News showed that the value of malls in the U.S. had declined 60%. The reason? Shuttered spaces created by retailers who went out of business or turned to selling products only online. Fewer tenants meant less foot traffic, which led to more tenants leaving the malls. Empty malls triggered lower valuations and owners walking away from their properties.
In 2021, Valley West’s assessed value was $32.9 million, a 25% decline from the previous year. This week, the mall’s online directory listed 48 tenants, another of which will be leaving soon. Von Maur has announced it’s opening a new store in Jordan Creek.
Valley West’s redevelopment plans
Watson Centers, Valley West’s owner, tried redeveloping the center. In early 2021 the city of West Des Moines, in partnership with Watson Centers, submitted a plan to the state’s Reinvestment District Program, asking to use $30 million in new state hotel-motel and sales tax revenue to help pay for redevelopment of the site. The nearly $300 million proposal included demolishing some structures and replacing them with multifamily residences, a hotel, stand-alone retail buildings, office space and an entertainment complex.
The proposed project was not awarded money from the state program.
“I don’t think they had a bad conceptual plan,” said Aaron Hyde, a vice president at JLL-Des Moines. “They just couldn’t get it over the finish line.”
The proposal submitted to the state could serve as a blueprint for potential buyers of the Valley West property, Evans and others said.
“There’s not an appetite anymore for a million-square-foot enclosed mall,” Evans said. “I think redevelopment of the site will need quite a bit of residential density and be pedestrian-friendly. That means making it easy for people to walk to different commercial areas and providing experiences that are not offered in other places.”
Michael Smith, a vice president at CBRE|Hubbell Commercial in West Des Moines, said Valley West’s location likely will make it an attractive property for potential buyers.
“Regional malls are not always in great locations for redevelopment,” he said. “This one is in an ideal location – there’s all sorts of different uses that can thrive there.”
Another thing potential buyers will consider is surrounding development, which is strong, Hyde said.
Target and Hy-Vee are west of Valley West, and retail areas along University Avenue are strong, he said. “The University corridor has managed to remain strong without relying on the mall.”
Regardless of how the site is redeveloped, the property’s new owners will likely need financial assistance from the city and other entities, Hurd said. “The city is going to have to step up and dedicate some real money toward the redevelopment of the site.”
The site also won’t be easy to redevelop, Ferguson said. A large portion of the mall is below grade level, making it difficult to redevelop, he said.
“This is something that’s going to take a while to accomplish, especially with the way the economy is,” Ferguson said, citing rising interest rates, supply-chain challenges and a possible recession.
Photo above: An aerial photo of Valley West Mall taken in November 2021. The white building on the right was once home to Younkers department store. The space has been vacant since Younkers closed in 2018. Photo by Duane Tinkey