Real Estate Developer Profiles

Victor Gruen - Father of the Modern Shopping Mall

Victor Gruen, an architect from Vienna, was asked by a friend in 1939 to design a leather-goods store in New York. The result was a revolutionary storefront, with a mini-arcade in the entranceway filled with glass cases, spotlights, and faux marble, and green corrugated glass on the ceiling. It was, in his words, a "customer trap," designed to lure customers into the store regardless of their interest in the products on display. The idea was new to American retail design, particularly in major cities where storefronts were flush to the street. Gruen received considerable critical praise, and designed stores for real estate developers around the city and in New Jersey.

Gruen's main contribution to commercial real estate development was on a new project for a real estate developer constructing Southdale, the first modern shopping mall. Construction costs totaled twenty million dollars, and the mall had seventy-two stores and two anchor department-store tenants, Donaldson's and Dayton's.

Southdale used a unique new design feature: previously, shopping centers used an extroverted style, with store windows and entrances facing the parking area and interior pedestrian aisles. Unlike other shopping centers, Southdale was introverted: the exterior walls were blank with all activity focused on the inside. Suburban shopping centers had always been in the open, with stores connected by outdoor passageways. Gruen had the idea of putting the whole complex under one roof, with air-conditioning for the summer and heat for the winter - it was a visionary concept for a developer, and created significant positive changes for retailers and developers.

Another of Gruen's new concepts was to create a multi-level shopping facility; to that point almost every other major shopping center was built on a single level. Gruen put stores on two levels, connected by escalators and fed by two-tiered parking. In the middle he put a courtyard under a skylight, with a fishpond, sculpted trees, bird cages, and a café. The result was a sensation in retail development. Critics and shoppers raved about the atmosphere, convenience, and design of the mall. Retail property development in the United States (and across the world) has never been the same.

Today virtually every regional shopping center in America is at minimum a fully enclosed, introverted, multi-tiered, double-anchor-tenant complex with a garden court under a skylight. (Many malls have more than two anchor stores - some have up to eight large department stores.)

Victor Gruen didn't just design a building; he designed an archetype. He created a retailing model that became the paradigm of retail property development. He gave speeches, wrote articles, and met with scores of real estate developers and commercial contractors in later years; his influence on commercial real estate cannot be overstated. By inventing the mall he invented an entirely new shopping experience and a new business model for real estate developers, commercial contractors, construction companies, and retailers across the United States. Real estate developers quickly worked with architects and designers to develop their own shopping mall plans, and retail stores rushed to fill open space created by new construction. Some properties reached a 90 percent lease rate even before they officially opened, as retailers jockeyed for prime positions (or any position at all) in newly-constructed malls.

At the time of Southdale's construction, large shopping centers were a delicate commercial proposition for most real estate developers. A large shopping center simply cost too much to build and took too long for a developer to recover his costs. Then, in the mid-fifties, something happened that turned the dismal economics of the mall upside down: Congress made a radical change in the tax rules governing depreciation.

For tax purposes in the early fifties the useful life of a building was held to be forty years, so a developer could deduct one-fortieth of the value of his building from his income every year. A new forty-million-dollar mall, then, had an annual depreciation deduction of a million dollars. What Congress did in 1954, in an attempt to stimulate investment in manufacturing, was to "accelerate" the depreciation process for new construction. Now a mall developer could recoup the cost of his investment in a fraction of the time. Many historians agree the result created a boom for commercial developers. As a result, developers could create projects at a much more reasonable cost for retail clients, who in turn could pass savings on to American consumers, who benefited from a more convenient shopping experience and lower prices.

Many construction companies quickly became commercial contractors, providing services to real estate developers with ties to major retailers. Mall design became so standardized that many commercial contractors focused exclusively on mall construction, traveling around the country from job site to job site. Retailers and consumers asked for more and more convenience: developers responded by designing malls with escalators, elevators, multi-level parking garages, and a host of other design features benefiting shoppers and retailers.

Today's mega-malls like the Mall of America in Bloomington, Minnesota are the direct descendants of Victor Gruen's vision. The largest mall in the U.S., the Mall of America includes three levels of shopping. Anchored by eight department stores and four hundred retail stores, the mall also includes an indoor roller coaster and a wedding chapel. Although certainly not on the scale of the Mall of America, within twenty to thirty years most small cities had malls based on the Gruen design, and by the year 2000 most small towns feature at least one mall, however small, based on the concept of two anchor stores with smaller retailers between.