Ghermezians build massive U.S. destination mall, despite rising e-commerce
Xanadu or Xana-don't? Canadian developer confidently restarts abandoned N.J. project to build American Dream
The U.S. has far too many malls for the e-commerce era. By one estimation, one in three is expected to close within the next decade.
But the Canadian family behind the West Edmonton Mall has started construction on a colossal, three million square-foot shopping and entertainment complex, across the Hudson River from Manhattan. It's called American Dream.
"The location is second to none," boasts Don Ghermezian, inside the company's modern office near the construction site in New Jersey.
Born in Edmonton, Don is the grandson of Jacob Ghermezian, an Iranian rug merchant who came to Canada in the early 1960s with his wife and four sons. In addition to West Edmonton, the biggest mall in North America, the family-owned Triple Five Group is also behind the second largest: Mall of America in Minneapolis.
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This latest project isn't quite as big as those, but it's bigger in ambition: it will feature North America's only indoor ski hill, a Lego Discovery Centre, a Dreamworks-branded water park and several other large-scale attractions. Plus there will be over 400 stores — Saks, Hermes, Zara and Lululemon have signed lease agreements, among others.
Too many malls already
A number of industry observers however, view the development as a highly risky gamble.
"This is an expression of 'if we build it, they will come,'" says Mark Cohen, director of retail studies at Columbia University in New York and former chief executive of Sears Canada until 2004.
Cohen points to the growth of online shopping as just one factor that's keeping consumers away from malls. There is also a "grotesque amount of excess retail space" in the U.S., he says.
One study concluded that the number of shopping centres grew at twice the pace the population did between 1970 and 2015.
Don Ghermezian isn't fazed by naysayers. "I agree, there are way too many malls in this country," he says. But he insists American Dream isn't a mall at all. It's an exciting destination that tourists from all over the world and local residents will seek out.
"Truth be told, I don't think that a developer anywhere in the world has put together the type of project that we have here at American Dream," he proclaims proudly.
'Ugliest building in the state'
The New Jersey complex has a troubled past. The development started life in 2004 as Xanadu, and before long was dubbed 'Xana-don't', when the original developer collapsed during the financial crisis of 2008. A second company also struggled and failed to bring the complex to life. It sat stalled and unfinished — metal girders rusting — for five long years.
Situated next door to the sports complex that's home to the New York Jets and Giants, Xanadu was a humongous eyesore. New Jersey Governor Chris Christie once called it "the ugliest building in the state, if not all of America."
But the governor was full of optimism when the Ghermezians' company, Triple Five Group, took it over in 2014. Goldman Sachs was hired to sell $1.1 billion in bonds, and a construction loan of $1.8 billion was arranged. Construction restarted in 2016.
'The swamp of New Jersey'
Not everyone in New Jersey is thrilled though, according to Jon Whiten of New Jersey Policy Perspective, a local think-tank. The project received a $390-million tax break, the largest in the state's history.
"Folks in New Jersey have raised and continue to raise pretty legitimate questions about why is the state in the business of propping up what appears to be just another mall," he says, noting that most of the jobs American Dream will create will be for low-paid retail clerks.
Like Mark Cohen, he doubts that visitors will make the trek across the Hudson River. "I don't see why someone coming to New York City, which is arguably the most exciting city in the world, would take the time to leave the city and go find this kind of destination out in the swamp of New Jersey. I love the swamp of New Jersey, but I don't see the market there."
Don Ghermezian insists American Dream is not just another shopping centre. "I'm not a believer in malls," he declares. "I've actually forbidden people in my company to use the word mall. We are the opposite of mall."
He notes that most malls are about 80 per cent retail, 20 per cent entertainment — "pseudo-entertainment" at that, according to Ghermezian, who believes restaurants and cinemas or bowling alleys don't cut it with today's consumers.
The split at American Dream is closer to 50-50, and the non-retail half features attractions such as a SeaLife aquarium, an NHL-sized rink, and one of the first U.S. locations for KidZania, an interactive city made for children that's expanding around the globe.
Ghermezian says the retail experience will be unique as well. One tenant is building a fashion show runway that comes out of the floor. Another is spending almost $6 million on a digital service that allows shoppers to try on clothing via a virtual mirror instead of actually changing into the items.
The formula is designed to win back shoppers who are increasingly going online.
"You can't go to a water park on Amazon, you can't go to a theme park online," Ghermezian points out. And he says close to half of the 62 million tourists who visit Manhattan every year bring children.
"After one day in New York City, after you've gone to the Empire State building the Statue of Liberty and Central Park, what do you do with the children?"
With opening day set for March 2019, the construction crew will grow from 1,500 workers to 5,000 by the end of this year.
Do people in New Jersey even realize that the American Dream is being built by Canadians? "They will sooner or later," says Ghermezian, with a smile.
"Once the project opens up, they'll realize this can only be the workings of one family. It's Triple Five. It's Ghermezians."