Despite a pandemic, mega-mall pioneers bet on American Dream

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The American Dream can be found just off the turnpike in East Rutherford, N.J., not far from the Hudson River. If you were trying to render a national ethos in physical form, you could do a lot worse. American Dream is a feverish hybrid of shopping mall and indoor amusement centre that sprawls over more than three million square feet, one of the largest in North America. Acres of retail space await inside, from Hermès to Sunglass Hut. Roller coasters snake through the Nickelodeon-themed indoor amusement park, real snow covers an indoor ski hill, and atop the wave pool at the DreamWorks water park looms a joyful, bare-chested Shrek.

Everything is extreme. The wave pool is the world’s largest indoor wave pool. That indoor ski hill? The first real-snow, indoor, year-round ski hill in North America. Even the three-storey candy shop is billed as the “world’s first candy department store,” which is surely a made-up honour. The store features a replica Statue of Liberty – a symbol of humanity’s eternal yearning for freedom – covered in jelly beans. The marketing material tells us the statue represents the freedom to “treat yourself.”

This funhouse vision of the American dream comes from Canadian developers Triple Five Group, helmed by the Ghermezian family of Edmonton. They’ve spent billions of dollars over nine years to bring it to life – only to be thwarted by the pandemic. Three days before the retail wing was set to open in March (the amusement park made its debut last October), the Ghermezians were forced to close because of the coronavirus, and it’s been shuttered ever since. American Dream has always been a daunting project, one at risk of becoming a nightmare for its Canadian operators. Skeptics charged that the mall was too close to New York City, a far bigger tourist draw, to bring in the 40-million annual visitors Triple Five projected. Bricks-and-mortar retailers and malls were struggling long before the coronavirus hit, too. Now, some of American Dream’s tenants have gone bust, revenue has been nil for months, and the project is saddled with at least US$2.8-billion in debt.

Indoor malls have been allowed to operate in New Jersey since the end of June, but American Dream did not reopen, preferring to wait until indoor amusement parks could operate again and emerge from the lockdown with more of a bang. That day is approaching. On Wednesday, New Jersey’s governor announced “indoor amusement facilities” can reopen as of Sept. 1, including American Dream. So far, the company has only said the indoor ski park will open next week.

As the nearly US$6-billion megamall prepares to face the true test of its worth, Triple Five is optimistic. “The vision of American Dream was for the future,” says Ken Downing, chief creative officer at Triple Five. “There’s much of the magic of American Dream that our guests and the curious haven’t been able to see, and I believe that will bring them.”

The Ghermezians are considered pioneers at combining retail and entertainment in gargantuan settings. Attractions lure people in, and they stick around to shop, their formula goes. At American Dream, visitors have to pass by stores to access other attractions. They’ve made it work at both the West Edmonton Mall and Mall of America in Minnesota, despite skeptics who criticized both projects decades ago. American Dream, they argue, will be no exception. “Triple Five has invested billions of dollars, created tens of thousands of jobs, and done what no one else could do,” president and vice-chairman Don Ghermezian said in a statement. (He was unavailable for an interview, according to a spokesperson.)

No one can truly say whether the formula will hold true on the other side of the pandemic, but the trends are working against American Dream. “The whole idea of it is to bring large amounts of strangers together into close quarters,” says Lisa Washburn, a New Jersey resident and managing director at Municipal Market Analytics Inc. “You just can’t accommodate the type of protections people are taking now and still generate the same type of traffic, if that was ever achievable.”

To get American Dream built, Triple Five had to put up huge stakes in both the West Edmonton Mall and Mall of America as collateral for a construction loan. If the American Dream dies and the company defaults, Triple Five could lose substantial pieces of its flagship properties. There are signs of strain at Mall of America. Triple Five is 90 days delinquent on a US$1.4-billion mortgage as of August, according to data firm Trepp LLC, and the loan was transferred to special servicing in May. The collateral value of Mall of America was lowered from US$2.3-billion to US$1.9-billion, too. (The value of the collateral is still “well above” the loan balance, Trepp noted.)

The Ghermezians have always billed their maximalist approach as the future of retail. These days, their style looks as if it’s from another era.

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The complex that would become American Dream broke ground in 2004 – so long ago as to be geological in time scale. Back then, Amazon.com Inc. was still struggling to move beyond selling just books and music online. Storied retailers were mainstays of commerce, not dying en masse. Shopping malls were places where people hung out, not potential e-commerce fulfillment centres.

So when a company called the Mills Corp. set out to build a massive shopping, sports and entertainment complex called Xanadu in New Jersey, it made a kind of sense. But the project was cursed. Mills Corp. ran into financial trouble, and another developer took over in 2006. That developer bailed during the financial crisis, and the building languished. Chris Christie, then New Jersey’s governor, called the partly constructed monstrosity “the ugliest damn building in New Jersey, and maybe America.”

Enter the Ghermezians. In 2011, Triple Five took over the troubled development and rechristened it American Dream. At a press conference, Triple Five chairman Nader Ghermezian stood out among the drab state officials with a red baseball cap on his head emblazoned with “American Dream.” He sounded a bit like a kid running for class president vowing to ban homework. “We will have bowling alleys for you. We will have theatres for you. We will have performing arts centres for you,” he said. There would be shopping to rival Paris, skiing to rival Aspen and a water park to rival Hawaii. “You can drink the water!” he said. (A spokesperson from American Dream clarified you should not drink the water.)

One of Nader Ghermezian’s nephews explained the development’s grandiose name was a nod to his family’s history – his father and uncles were immigrants who came searching for the American dream. “They achieved it,” he said. “They want to share that dream with everybody.” He didn’t mention that the family achieved the American dream while in Edmonton; nor was there any hint of irony in the suggestion that shopping at a mall in east New Jersey amounts to a realization of that dream. If the name sounds like a too-on-the-nose critique of American excess and consumerism, the Ghermezians are only unintentional satirists.

But that mix of bombast, bold promises and a touch of the absurd have been hallmarks of the Ghermezians’ approach to development. The family traces its roots to Jacob Ghermezian, known as Papa. He was intrepid, operating a bazaar and an apartment and shopping complex before leaving Iran in the 1950s amid political and economic instability, along with his wife and four sons (including Nader). They set up a rug-trading business, and the family eventually settled in Edmonton, where they bought up cheap land. The Ghermezians, who named their company Triple Five in 1972, made their name in development. (Papa died in 2000, at the age of 97.)

Their biggest gamble was the West Edmonton Mall, which opened in 1981 and now comprises 5.3-million-square feet. Inspired by the bazaars of Papa Ghermezian’s youth, which combined shopping and entertainment, the family built a water park, roller coasters, an aquarium and hotels. They were mad scientists of amusement, experimenting with dolphin shows and submarine rides. The recession in the early 1990s nearly sunk the property. Alberta Treasury Branches, now the Crown corporation ATB Financial, agreed to secure some $420-million in loans to keep the mall afloat.

By then, the West Edmonton Mall wasn’t their only mega property. In the 1980s, the Ghermezians made plans for another retail and entertainment complex in Bloomington, Minn., called Mall of America. To build support, the Ghermezians used a cocktail of charm (inviting officials up to Edmonton), spectacle (planting one of their submarines at City Hall) and parental guilt. “You will have all the shoppers from New York, Rome, Los Angeles and Paris coming here,” Nader Ghermezian said at a 1986 press conference in the face of local skepticism. “I bring you the moon, and you don’t want it?”

Both malls have been remarkably successful at drawing in tourists. Mall of America, which opened in 1992, attracts around 40 million annually, while another 30 million flock to the West Edmonton Mall. Both were the second busiest malls in their respective countries last year, according to the Retail Council of Canada. So when the Ghermezians arrived in New Jersey, which was desperate to see Xanadu completed, they came with an impressive track record and a bold opening date of late 2013.

The deadline whizzed by, and the mall was mired in the kind of construction, financing and legal delays endemic to large projects. Don Ghermezian, one of Papa’s many grandchildren, was appointed to lead American Dream and talked it up at every opportunity. It would be “out of this world,” “the pre-eminent tourist attraction ... in all of North America” and “the highest-grossing centre in North America,” he said over the years.

During that time, however, the retail world shifted. Amazon became one of the most powerful companies on Earth, and bricks-and-mortar retailers struggled to adapt. The rise of warehouse clubs in the United States, namely Costco and Sam’s Club, hoovered up more consumer dollars, too, further driving the decline of department stores and their ilk. A 2015 study in the Journal of Economic Perspectives pointed out that while Amazon increased U.S. sales by about US$38-billion between 2000 and 2013, Costco boosted sales by US$50-billion. Income equality worsened in America, and discount and dollar chains grew rapidly to cater to lower-wage consumers. Retailers in the middle were left floundering.

A similar dichotomy is playing out with shopping centres. Higher-end malls that can attract upscale or trendy retailers, and invest in experiences beyond shopping (anything from yoga studios to medical clinics), have been thriving at the expense of run-of-the-mill malls that offer little that’s unique. Some shopping centres lost anchor tenants as chains such as Sears plunged into bankruptcy or retrenched, and are still adrift. Losing an anchor tenant means fewer visitors, lower sales and, ultimately, more store closings. (There’s an entire YouTube channel devoted to touring these spectral shopping malls.) A 2017 report from Credit Suisse estimated that as many as one in four malls in the U.S. could shut down by 2022 – and the pandemic is accelerating that trend. Coresight Research warns that as many as 25,000 store closings could be announced this year; up to 60 per cent of those are in malls.

The Ghermezians have always contended American Dream is not a traditional mall – or, as its chief creative officer puts it, the “M-word.” In terms of turning shopping centres into experiences that offer something more than the chance to buy things, the Ghermezians have been way ahead of the curve. The demise of lacklustre malls only strengthened the case for American Dream, in their view. When fashion mogul Michael Kors toured the property, Mr. Downing says he told them: “You’re a unicorn. You’re one of a kind.”

Don Ghermezian, who often sports a casual look with fitted T-shirts and jeans, grew up in the family mall business. (Triple Five is a broad company, with a private equity and venture capital affiliate, and engineering and biotech arms.) As a teenager, he worked as a ride operator at the West Edmonton Mall. “It’s always been a part of my life,” he told The Edmonton Journal in 2002. “I’ll never leave the mall.”

Mr. Downing, who joined the company in 2019 after a long career as the fashion director at high-end retailer Neiman Marcus (which, incidentally, filed for bankruptcy protection in May, with plans to re-emerge) said that for Don Ghermezian, there is no idea that can’t get bigger – and even bigger from there. “At the end of the day, the numbers need to add up,” he says, “but that doesn’t get in Don’s way or his family’s way of wanting to deliver an amazing customer experience.”

Don Ghermezian is a fervent believer in the family vision, too. About a year and a half ago, he got in touch with Mark Cohen, director of retail studies at Columbia University, after Mr. Cohen made a slightly critical comment about American Dream in the media. “He reached out to me immediately and politely but firmly suggested that we should get together so he could disabuse me of my view,” recalls Mr. Cohen, a former CEO of Sears Canada. “I ignored him for a while, but he’s very persistent.” Don Ghermezian made the case for American Dream for about two hours. “I told him, ‘You haven’t changed my mind. In fact, you’ve solidified my criticism,’” Mr. Cohen says. He felt the location was all wrong, the property too big and that Mr. Ghermezian grossly underestimated how long it would take to drive through congested traffic from New York to New Jersey. “He was unhappy he couldn’t make any inroads,” Mr. Cohen says.

The Ghermezians were in too deep to stop by that point, anyway. To complete construction, Triple Five secured a US$1.67-billion construction loan from Goldman Sachs and JPMorgan Chase, and pledged a 49-per-cent stake in both the West Edmonton Mall and Mall of America as collateral – the crown jewels of the Triple Five empire. The company also issued another US$1.1-billion in high-yield bonds in 2017. The risk section of the offering sheet stretched nearly 40 pages.

American Dream finally opened in October, 2019, but only partly. It would be unveiled in stages (or “chapters,” in company parlance). The Nickelodeon theme park came first, followed shortly by the ski hill. Mass-market retailers and the water park were scheduled for March. A luxury retail wing would open in September. Still, after 15 years, the opening of even a portion of American Dream was momentous for the region. A marching band paraded through the facility on opening day, flanked by someone in a maniacal SpongeBob SquarePants costume. At a press conference, Don Ghermezian expressed confidence in the Ghermezian formula. “We know the formula works ... and we’ve just really gone crazy to deliver it here,” he said, shouting to be heard over the grinding machinery and screams echoing in the cavernous amusement park behind him.

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There are at least two broad schools of thought on the fate of American Dream. Some argue lockdowns are creating pent-up demand for the kind of activities offered there. People will want to cleanse themselves in the waters of the Kung Fu Panda Temple of Awesomeness to put the coronavirus behind them. Others contend the pandemic has fundamentally changed consumer behaviour.

Jim Kirkos, head of the area’s chamber of commerce, is in the former group. “American Dream becomes an even bigger attraction than before. People will want to have experiences and treat themselves because life is too damn short,” he says. That people have returned to the casinos of Atlantic City is proof, he points out, and those casinos have a much smaller footprint than American Dream. All that space could work to its advantage, helping visitors feel safe. “You gotta look up and strain your eyes to see the ceiling,” he says.

Mr. Downing says he’s encouraged by American Dream’s first few months, which saw more than 700,000 visitors, and adds the company is constantly fielding questions about a reopening date. American Dream’s Instagram page is awash with such pleas. “They miss us,” he says. “It’s not like we’re hearing from people that they’re afraid to come. We’re hearing from people that they’re really excited for us to open.”

Some experts argue that American Dream could even benefit from the misfortune of the retail industry at large. With many stores and malls likely to shut down or shrink as the economic damage caused by the pandemic rages on, the Ghermezians’ project could be a draw to consumers who have fewer options. “In some bizarro way, they could be perched for even larger success,” says Nina Kampler, president of Kampler Advisory Group, a retail and real estate consultancy in New Jersey. Ms. Kampler previously worried about the luxury retail section of American Dream, since upscale shoppers prefer a “more stratified, posh environment.” But the company invited her for a tour in August, and her doubts were erased. The luxury retailers are segregated from the rest of the property, for one thing. She left with one conclusion: “It is impossible for this to fail,” she says.

Ms. Washburn at Municipal Market Analytics can think of a few ways. She’s long been skeptical that American Dream could attract enough visitors, given it’s next to New York City, which has far more shopping, entertainment and dining options. Triple Five noted the property is in “direct competition” with New York in the risk section of its bond offering. Tourists to New York could also be unwilling to make a side trip to the mall owing to the “difficulty, expense, unfamiliarity, and time-consuming nature of the transportation options,” according to the document.

That’s not great news, since American Dream’s success depends, in part, on tourism. Travel spending is depressed and not expected to recover until 2024, according to the U.S. Travel Association. A survey conducted in late July by MMGY Travel Intelligence showed 38 per cent of American respondents said they were likely to take a domestic leisure trip in the next six months, unchanged since late April, about a month into lockdowns. But the likelihood of visiting an amusement park has ticked down, with parks and beaches becoming more popular.

As large as American Dream is, there’s much more space outside, and leisure-seekers in the age of COVID-19 might might opt for the Jersey Shore over an indoor water park. “And if you want to go skiing, we’ve got a lot of those experiences not too far away,” Ms. Washburn says.

The retail outlook is grimmer. The pandemic has already claimed some of American Dream’s tenants: Vitamin seller GNC Holdings Inc. and the owner of a movie theatre chain both filed for bankruptcy protection. Others ran into trouble even before the pandemic, including upscale retailer Barneys New York, which announced plans for a new store in the megamall in March, 2019, only to file for bankruptcy five months later. And still more tenants are hitting financial headwinds. Victoria’s Secret said earlier this year it would close 250 stores in the U.S. and Canada, but still plans to open at American Dream.

In April, Don Ghermezian told CNBC Triple Five was adapting by reducing retail to 30 per cent from 45 per cent of the complex and adding more entertainment. But in May, his cousin and American Dream co-CEO Mark Ghermezian said the statement was taken out of context. “We’re seeing a lot of our retailers going to add more experiences to their existing retail,” he told industry site Omni Talk, not retrenching. Mr. Downing says the much-publicized 45-55 retail and entertainment split were “ish” numbers. “At some point, big as we are, entertainment could become a larger portion. But it doesn’t mean retail is not important to us,” he says. “We have retailers who are literally crazed to get their doors open, because they believe that much in what we’re doing.”

Online shopping, meanwhile, has exploded in the U.S., surging 76 per cent in June and 55 per cent in July, according to Adobe Analytics. “The longer this goes on, the more ingrained it will become, and the harder it’s going to be to get people to shop [in stores] again,” Ms. Washburn says.

There are worrying signs that at least some consumers won’t snap back to normal life so quickly. “We believe that consumers are likely to continue spending a significant amount of time at home, driven by a desire to save money and reduce the risk of infection – plus, a newfound pleasure in nesting,” according to an August report from McKinsey & Co. The consulting firm estimates it could take anywhere from three to 10 years for spending outside the home to recover. About 70 per cent of consumers plan to continue or boost online shopping after lockdowns end, according to McKinsey, while 28 per cent of that group said they plan to avoid stores entirely.

American Dream’s completion is also coinciding with an economic calamity. The jobless rate in New Jersey hit 16.6 per cent in June and 10.2 per cent nationally in July. Jeff Tittel, director of the New Jersey Sierra Club, says the cost to visit some of American Dream’s attractions is out of reach for many families. Previously, an all-access pass to the amusement park cost US$69 a person, while the water park charged US$99. “How does the average family afford it?” he says. “Even when the economy does come back, it’s going to take a while for people to have that kind of surplus money again.”

Mr. Downing says the company is adjusting prices but hasn’t finalized them yet. But a price cut highlights how painfully slow a recovery is going to be. American Dream’s reopening plan calls for reduced capacity and temperature checks at the amusement and water parks. Other Ghermezian properties are operating with similar restrictions. The West Edmonton Mall started reopening in May, but the food court is running at half capacity, the skating rink is only available for group bookings and every second lane at the bowling alley is closed. The theme park at Mall of America opened in August, with occupancy limited to 250 guests and each one allotted a two-hour chunk. Some rides will remain closed to allow for physical distancing.

“They could be forced to cut and run,” says Mr. Cohen at Columbia, referring to American Dream. “If the family succeeds, it will be because they have deep enough pockets to wait this whole thing out.”

Mr. Downing, though, is planning for how to use American Dream’s ample space for a postpandemic world. “It’s really positioned us to be ready for the future. Even within our courts, we can have music series, we can have dance performances, we can have art exhibits,” he says. “It’s a living, breathing organism that was always planned to be in constant change.”

The Ghermezians also have an eye toward the future – even if the future sounds somewhat familiar. Triple Five is developing yet another American Dream complex, this one in Miami-Dade County in Florida. It will feature lots of retail, a theme park and submarines plumbing the depths of an artificial lake. Groundbreaking is still set for 2021.

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