Lakeforest Mall’s Owner Looking for Buyers

Long-term plans could bring redevelopment of Gaithersburg shopping center

By Charlie Wright

Lakeforest mall in Gaithersburg, the city's first enclosed mall. Jones Lang LaSalle

Lakeforest mall in Gaithersburg is back on the market.

A national real estate advisory firm is trying to line up for buyers for the 1 million square foot shopping center off Interstate 270 at Montgomery Village Avenue, viewed as a prime property for a mixed-use development.

Chicago-based Jones Lang LaSalle is handling the sale, billing the 102-acre property as “a well-located regional shopping center, with an existing leasing structure that provides significant upside and redevelopment potential.”

Any deal is not expected to include the mall’s four, company-owned anchor department stores.

The property is owned by U.S. Bank, which completed a $19.1 million purchase in a January 2018 foreclosure auction, which came as the mall’s luster faded over years amid a downturn in brick-and-mortar retail and as newer shopping areas arrived in Germantown and Washingtonian Center.

The mall provides 1.05 million square feet of gross leasable area, according to JLL’s investment summary, but more than half of that space is occupied by the anchor tenants.

JCPenney, Macy’s, Sears and Lord & Taylor each own their individual spaces, and full-scale changes would require either the buyer to purchase those properties or reach an agreement between all property owners, Gaithersburg Mayor Jud Ashman said.

The buyer could invest in renovations in the “core mall,” but would not be able to make substantial changes without permission.

“We’d love to see it redeveloped, I think that’s unanimous among our elected officials and among our residents of Gaithersburg,” Ashman said. “There’s a tremendous amount of potential in that piece of property that’s just waiting to be taken advantage of, but we’re awhile away from getting there.”

The mall is in a government enterprise zone and developers could get tax breaks and other incentives for any projects.

Gaithersburg expanded the zone to include the mall in a proposal that went into effect in summer 2018, said Tom Lonergan, the city’s director of economic development.

The original zone covered the Old Town area, but the boundaries were expanded and the new agreement runs through 2028.

Enterprise zone benefits include property and state income tax abatements and the waiving of county impact fees could provide additional incentives to buyers, Lonergan said.

“That’s our hope,” Lonergan said. “That’s why we worked so assiduously to get the zone expanded to include the mall property. One hundred acres of development potential is certainly enhanced with some generous tax and other financial incentives.”

Lonergan said malls like Lakeforest, considered in the lower-tier, are a dying breed. While top-tier malls are doing better than ever, older centers are struggling financially, Lonergan said.

The city envisions the property as a mixed-used development, with some sort of public amenity, along with residential and office space, Ashman said, adding that it’s difficult to nail down what it will look like at this point in the process.

“Essentially, this is a step,” Ashman said. “A lot more things have to happen before Lakeforest can be redeveloped.”

A Frederick-based real estate company late last year bought another prime parcel, occupied by a large office campus, less than a mile away from the Lakeforest property.

The company’s preliminary plans envision a mixed-use development of offices and shops.

The Jones Lang LaSalle promotional package for Lakeforest highlights the center’s location, stable sales productivity and a desirable demographic.

Around 45,450 vehicles drive by 701 Russell Ave. every day, and the area features a population of about 632,456 with an average household income of $140,096 within a 10-mile radius, according to JLL.

Charlie Wright can be reached at charlie.wright@bethesdabeat.com