Developers Want Malls to Become Warehouses or Offices. It Is a Slog.

Razing and redeveloping a space that spans dozens of football fields is filled with potential land mines. The new investor may own the mall but not the department stores or parcels in the parking lot, which means an owner needs their approval. Owners will also need to seek rezoning and entitlements permits that can take years, during which economic conditions can deteriorate.

Consequently, many recent conversion efforts have gone awry, forcing the owner to sell the property at a discount. In other cases, local government authorities have lost patience and bought the owners out.

Brookfield Property Partners

LP has made converting all or part of malls one of its prime real-estate strategies. In 2018, the firm bought the two-thirds of mall operator GGP Inc. it didn’t already own, valuing GGP’s property portfolio at around $15 billion. The acquisition reflected Brookfield’s confidence in the mall-conversion strategy, but the real-estate investor has often struggled to make this approach work.

Brookfield last week handed over its North Point Mall in Alpharetta, Ga., to a lender, despite having secured rezoning approvals to add hundreds of residential units to the site in 2019. Yet with the two-story property losing tenants in recent years, its value has sunk below its loan balance of roughly $200 million—thereby making little economic sense for Brookfield to continue repaying the loan and investing in the mall’s redevelopment.

The property firm in July canceled plans for the redevelopment of a former Vermont mall after securing permits to tear down the property. Brookfield said at that time that the long-term nature of the development’s next phase didn’t fit with its funds mandate. Analysts said that office and retail tenants are turning more cautious about signing new leases, which made redevelopment projects like this less of a sure bet.

An investor’s ambitious plan to turn the struggling Gwinnett Place Mall outside Atlanta into a 20,000-seat cricket stadium didn’t work out, either. The 1.7 million-square-foot mall thrived in the 1980s and ’90s but later suffered from competition by neighboring malls and went into foreclosure in 2012.

Moonbeam Capital Investments LLC purchased the mall in 2013 for $13.5 million. The firm, which specializes in buying nonperforming loans backed by commercial properties, planned to build apartments and offices after demolishing a department store at the mall. But Moonbeam ran out of money and didn’t proceed, according to a person familiar with the matter.

In 2019, an investor proposed buying the site and turning it into a cricket stadium, hoping to appeal to the region’s large Indian population and its enthusiasm for the British sport. The investor, Philadelphia-based businessman Jignesh Pandya, hoped a stadium would be a part of a proposed U.S. cricket league. But the sale fell apart when the two sides couldn’t agree on terms, according to a person familiar with the matter.

In December, county officials agreed to purchase the mall from Moonbeam for $23 million rather than see this valuable site go unused by the community.  It couldn’t be determined if Moonbeam, which didn’t respond to requests for comment, made money on the sale after including investment costs.

Not all conversions fail. Some dying malls have become warehouses, prized by logistics companies since they are located near major highways and have ample parking fields. In rare instances, tired shopping centers draw technology firms seeking a site for their headquarters or an office campus.

Local governments often step in to buy the mall to prevent further decay and make the site more palatable for future investors. While local authorities rarely pay top dollar for failing malls, some sellers have broken even or squeezed out a profit if they picked up the malls cheaply after the 2009 recession.

In Norfolk, Va., the Norfolk Economic Development Authority purchased Military Circle Mall and called for investors to submit plans for the site. The city said this month it has shortlisted four groups, including one with entertainment companies and the musician

Pharrell Williams.

Write to Esther Fung at esther.fung@wsj.com