As retailers cut back cities confront 'ghostboxes'

Hundreds of anxious shoppers watched as city officials used power saws to cut 2-by-4s during Home Depot Inc.'s ribbon-cutting ceremony for its 102,700-square-foot building center in Bismarck. Less than three years later, the home improvement retailer shuttered the underperforming store, leaving a big orange empty eyesore on the outskirts of town.

The building, sitting derelict and silent on acres of asphalt, is now listed for sale at $10.5 million. But there's been little interest in the near windowless warehouse-like building that occupies a lot the size of a dozen football fields.

For potential tenants "it's a hard pitch because for most uses it seems to be a bit of a tough fit," said Brian Ritter, business development director of the Bismarck-Mandan Development Association.

As the recession takes its toll on big-box retailers, more communities across the country are having to confront not just the eyesore of giant empty stores, but also the loss of jobs and tax revenue that follow.

Many are trying to find creative uses for those near windowless monoliths. In Minnesota, one became a Spam Museum. In Texas, an indoor go-cart track. In Illinois, a church moved into an empty Wal-Mart. The new tenants, however, often generate less revenue for local governments.

And with the recent spate of bankruptcies and store closures, including Circuit City and Linens 'N Things, more abandoned buildings will be added to a struggling commercial real estate market. There are already hundreds of empty "ghostboxes" around the country.

"There is not a landfill on earth able to handle all the big boxes that we have sitting empty," says Julia Christensen, author of the book "Big Box Reuse," who has been studying the trend since 2002.

Some have been transformed into museums, community centers, hospitals or schools. Future tenants, however, can be restricted by the former retail chain.

"Often, they sign leases that prohibit competitors from moving in there, so they're willing to pay on an empty building for a long time," said Christensen, also a visiting professor at Oberlin College in Ohio.

The International Council of Shopping Centers said 6,913 retail stores - of all types - announced closures last year, compared with 4,603 in 2007.

Excess Space Retail of Lake Success, N.Y, specializes in real estate disposition and lease restructuring for retailers, including Home Depot, Wal-Mart, JC Penny and Kmart. The company has seen a more than 30 percent jump in the number of empty retail locations in the past year, he said.

"We are handing in excess of 2,000 locations for some 50-odd retailers, said Michael Burden, a principal with Excess Space Retail. "The square footage is in the tens of millions."

Home Depot, for example, closed 15 underperforming stores last year, and 41 its smaller home improvement brands, including Expo Design Centers and YardBIRDS.

"The goal is to sell or lease the property as quickly as possible," said Ron DeFeo, a spokesman for the Atlanta-based Home Depot. "The last thing we want is to see an empty store in a community - it's a difficult enough decision to close a store in the community."

In Frankfort, Ky., an empty Home Depot is adjacent to a sign welcoming visitors to the city.

Focusing on the positive, Phil Kerrick, economic development director for the city and Franklin County, says, "It's a great building, in good shape and in a good location."

Frankfort, Kentucky's capital city, has dealt with vacant big box space before, when Lowe's Cos. moved into a bigger box in town. The building was converted to a state office building.

In Round Rock, Texas, a former Wal-Mart was converted into a go-cart track for a time.

City manager Jim Nuse said while the indoor racetrack was better than having the building sit vacant, it was far from the ideal use of the space.

The track was open for about two years until the building's owners renovated the building to house several businesses, including a health club, restaurant and gourmet market.

Owners of the building gave it a new facade and landscaping to make it look less boxy to attract new tenants, all at no cost to the city.

"We were lucky," Nuse said. "It was a less-than-attractive space for awhile but it turned out to be really nice, though it took several years for that to happen."

Hormel Foods Corp., maker of the famous canned luncheon meat, opened the Spam Museum in Austin, Minn., in an old Kmart building that also had been a Sears store.

Sandy Forstner, executive director of the Austin Chamber of Commerce, said the Spam Museum, which opened in 2002, has been more valuable to the southeastern Minnesota community than the previous retailers, both in terms of property tax revenue and the number of visitors it draws to the area.

"The property has been significantly improved," Forstner said. "Hormel has spent millions of dollars redeveloping the property."

The 16,500-square-foot building also houses the headquarters for Hormel and offices for a hospital, he said.

Forstner said the Spam Museum is one of the biggest destinations in the state, and has brought tourism dollars to the town of about 23,000 people, near the Iowa border.

"It's always a problem for a community when a business leaves a building," he said. "The bigger the business, the bigger the facility and the bigger the problem."

Wal-Mart Stores Inc. is opening 157 stores this year, but the world's largest retailer has 147 vacant U.S. stores its trying to get rid of.

"We've been pretty successful identifying new tenants or new owners," said Greg Rossiter, a spokesman for Bentonville, Ark.-based company Rossiter. "Some of the uses are pretty unique."

A former Wal-Mart in Carlinville, Ill., was converted to a church, but not before a legal battle from the city.

Mayor Robert Schwab said retail space is at a premium in the city of about 6,000, so when Wal-Mart announced it was building a new Supercenter in town, community leaders were hopeful the old facility could be turned into new retail space.

Instead, Wal-Mart sold the 50,000-square-foot building to the Carlinville Southern Baptist Church in 2007.

"Nothing against churches, but the city loses, the county loses and the school district loses sales tax and property tax as a source of revenue," the mayor said.

"It was probably the largest building available in probably the whole county," Schwab said. "There was a lot of interest in it but Wal-Mart found a willing buyer that gave them no competition at all."

The city and the church settled a federal lawsuit last year over the church's right to operate in a commercially zoned property, Schwab said. The church was given and a special-use permit, and the city's insurer paid $125,000 in compensation to the church and $50,000 to the city in a settlement, he said.

Schwab said the city had paid hundreds of thousands of dollars in infrastructure improvements to roads and stoplights leading the old Wal-Mart building, built in the early 1980s.

He said the mega-retailer should have consulted with city officials before selling.

"We should have had the right of first refusal," he said.

Bruce Botelho, the mayor of Juneau, Alaska, said when the town's Kmart store closed in 2003, the city lost jobs, sales tax and had an embarrassing eyesore until Wal-Mart opened a store at the site last year.

The abandoned building was the target of vandals who painted graffiti on outside walls and junk cars littered the parking lot. The building also was not maintained properly during the time it sat derelict, and the interior of the building flooded, Botelho said.

"It was no doubt a stressful time," he recalled.

Wal-Mart has relocated three times to bigger locations in Bardstown, Ky., a community of 11,000. Two of the buildings have been filled with more retail space, and one was torn down to make way for a new courthouse, said Kim Huston, president of the Nelson County Economic Development Agency

The city has imposed new design standards for big boxes and has imposed new rules that require a building to be razed if it cannot be sold, said Huston.

In Bismarck, the business development director says most cities are reluctant to impose such rules on big box retailers, fearing a lost bid for the store.

"If you do, they simply won't locate in your community," Ritter said. "Depending on how you look at it that may be a good thing or a bad thing."