Scottsdale Fashion Square

The new luxury wing at Scottsdale Fashion Square opened on Nov. 15 and features high-end brands like Louis Vuitton, Gucci and Bulgari.

As other malls struggle throughout the state and the country, Scottsdale Fashion Square continues to be an economic driver for Scottsdale.

Anyone looking for proof of Fashion Square’s unique place as a thriving mall need look no further than its parent company Macerich.

After receiving zoning approvals from the city last year that allowed for increased building heights on some areas of the property, Macerich began work on an ambitious multi-phased expansion project at the mall that included a renovated luxury wing off of Goldwater Boulevard.

That wing features high-end brands like Louis Vuitton, Gucci and Bulgari and bathrooms with imported Italian marble and valet service outside the front door.

The entranceway to the wing on the western side of Goldwater Boulevard is flanked by several in-development high-end restaurants as well – including the first Arizona locations for Farmhouse, Zinqué and Nobu, the posh Japanese restaurant from Chef Nobu Matsuhisa and backed by Robert De Niro and Meir Teper.

That exclusivity is part and parcel of what has made Scottsdale Fashion a success in an era when the sustainability of the entire shopping mall model has been called into question throughout the country.

“Scottsdale Fashion Square has lots of first-to-market offerings, like the Apple flagship store (in the former Barney’s location),” said Andy Greenwood, Macerich assistant vice president for development, commenting on the mall’s success.

Ultimately, the current Fashion Square expansion could include office space, a hotel and multifamily residential as well.

According to financial documents filed with the SEC, the luxury wing and the redevelopment of the former Barney’s location – that now houses the Apple flagship store and an area for co-working space from Industrious – cost approximately $140 million to $160 million, with Macerich footing half of that bill as part of the partnership that owns the mall.

That investment comes at a time when demand for mall and shopping center space by retailers is down to a six-year low, according to a report from CoStar from May 2018.

Macerich has its own cautionary tale on the books that would argue against this kind of aggressive spending in the Valley in the form of Fiesta Mall. The company paid $135 million for that now-shuttered Mesa mall two decades ago.

Fiesta Mall floundered in the years after that sale and was sold by the lender in the Macerich transaction for less than $7 million in 2017. The new owners plan to transform it into a higher education campus.

Why would Macerich throw cash into a mall when the market is struggling across the country?

Part of the answer has to do with location. The Phoenix Metropolitan area has shown population growth that is attractive to retailers, thus allowing the area to avoid the lack of demand seen in other markets.

“Phoenix for example, has seen population growth at three times the national average in recent years,” said Ryan McCullough, senior managing consultant for CoStar Portfolio Strategy, in the report. “It was overbuilt before and after the recession, but it’s getting healthy quickly.”

Fashion Square also has a history of profitability due to its location within the highly-affluent Scottsdale community and position as a top tourist attraction in the city.

According to SEC filings, as of Sept. 30 Scottsdale Fashion Square is bringing in the sixth-highest sales per square foot of any mall in Macerich’s 54-property portfolio at $1,032.

The mall has a 92.6 percent occupancy rate and takes in annual sales of over $650 million.

The property has been a boon for the city as well.

In 2016, the mall contributed $13.1 million in sales tax to the City of Scottsdale, which is about 7 percent of the city’s total sales tax collections that year of $187.2 million, according to numbers provided by the city.

“We’ve always felt that Fashion Square’s success is the city’s success, and we also do believe that the city’s success also lends itself to Fashion Square’s success,” Mayor Jim Lane said.

That benefit has not come without some give from the city and, in some cases, pain for residents.

The most recent zoning changes in 2017 were met with resistance from local residents due to the mall’s request for increased building heights on some parts of the property to allow for the development of hotel, office and residential uses.

Macerich did work with the community to address some concerns by increasing its setback requirements, adding open space to the plan and limiting the areas where buildings can exceed 90 feet in areas near Optima and the Waterfront.

The city has also given financial incentives for mall development in the past, too.

The city gave the mall a $4 million tax rebate to bring in Neiman Marcus and also gave developers on the waterfront a 90 percent rebate on city sales tax generated at the waterfront for 25 years as part of the deal that brought in Nordstrom in the late 1990s, according to stories in the Phoenix Gazette in 1995 and 1996.

The city also agreed to a 50–year lease agreement for the parking structure adjacent to Nordstrom for $31.375 million in lease payments plus interest.

Those types of compromises – and conflicts – have been part of the relationship between the mall, Scottsdale and residents.

The mall, which has sat at Camelback and Scottsdale Roads since 1961, has undergone numerous renovations in the decades since it opened, slowly growing outward and then upward like a vine across and over roadways to make space for more retail, restaurant and entertainment space.

Greenberg admitted that if he were building the mall today, he likely would not choose the current location in the midst of a dense downtown and would likely opt for a more traditional location adjacent to a freeway and on a greenfield site that offered space to expand horizontally, like SanTan Village in Gilbert.

He said that the mall’s unorthodox location is one reason Macerich pursued zoning changes last year to allow the development to build up instead of out.

But the mall is where it is, and Macerich is making the most of it.

The company likely could add a slew of mixed uses – from hotel to retail and maybe even a grocery store – to the site under the current renovation, according to city documents.

Greenwood hinted at more redevelopment coming to the northern parcel, north of Macy’s and south of Highland Avenue, stating that the company has plans for “exciting things that we will be seeing and talking about in the future.”