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Suburban Mall Wins Reuse Battle Landing ‘Fortnite’ Global HQ

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For over a decade the small Raleigh, North Carolina suburb of Cary has been trying to find ways to adapt its languishing Cary Towne Center mall. The mall, like many around America, has had a rough go. It lost three of its five anchor tenants; it was last updated in 1992. The 1 million square foot shopping center had suitors. It was set to be home to Top Golf, then an Ikea superstore, before settling on a 4.5 million square feet mixed-use conversion dubbed Carolina Yards. None of those plans came to fruition. In the end, nearby game developer Epic Games, behind the record breaking hit Fortnite, purchased the mall for a whopping $95 million, where they will transform the 97-acre campus into its global headquarters. 

What to do with America’s dying shopping malls has been a problem that’s plagued owners, developers and city planners for years. The ideas have been plentiful, adding residential units or logistics hubs for example. Owners have tried to re-tenant empty big box stores with everything from gyms, grocery stores, go-kart tracks, mini-golf, warehouses, apartments, civil services and co-working spaces. After purchasing Cary Town Centre as a distressed asset for $31.5M in 2019, Turnbridge Equities and Denali Partners were looking for a similar opportunity. They found an even better one in their own backyard. One of the world’s largest game developers, Epic Games, is headquartered in Cary, officing hundreds of workers in a 250,000 square foot, three story office park. Last year the company announced plans for a roughly 500,000 square foot expansion. Turnbridge Equities and Denali Partners had another idea. The game developer bought the mall outright for $95 million, according to a record filed with Wake County. A 300 percent margin on a languishing mall at 65 percent occupancy in two short years of ownership may be one of the best adaptive reuse deals in the country.

Founded by Tim Sweeney in 1991 as Potomac Computer Systems, the company moved from its home in Maryland to Cary in 1999, rebranding to its current state. Cary is part of North Carolina’s Research Triangle, a populous area made up of Raleigh, Cary and Durham, home to Duke University and 11 other institutions of higher learning. From it’s new home with access to plenty of talent, Epic Games launched an empire. With games like Fornite, Gears of War and the most successful video game engine in history, Epic Games now operates 40 offices around the globe, valued at nearly $18 billion. Last year Epic raised an additional $1.78 billion from investors, making it the most valuable VC in the entire state. The funds were said to be used for development of VR and digital marketplaces, but soon after Epic launched an all out legal war against Apple and announced plans for a new HQ where it would hire hundreds. 

“We’re extremely proud that Epic has chosen to call Cary home for their new global headquarters, and we greatly appreciate the company’s recognition of Cary’s existing assets as well as the unlimited potential of the area for their growing business,” Cary, NC Mayor Harold Weinbrecht said in the release.  “We look forward to continuing to work closely and collaboratively with the Epic team as they conceptualize their new campus, and we’re honored to partner with them on this exciting new development.”

Exact details are still in the works. Epic will have plenty of options and be able to begin work immediately after the mall was recently rezoned. The asset’s rezoning was essential to the deal getting done, according to the release. Work, which will include some demolition, will begin this year, with Epic Games taking occupancy sometime in 2024. Future facilities will include office and creational space. Epic is also working with the city to explore ways some of this property might be used by the community.

A $193 million indoor sports complex was approved for the site by the Wake County Board of Commissioners early last year. The plan called for 12 full-size basketball courts, a 4,000-seat arena, a 25,000-foot multi-purpose space, four full-size locker rooms and a full-service restaurant. How those plans and Epic’s plans will mix hasn’t been detailed out yet. 

“Epic shares our vision for transforming Cary Towne Center into a vibrant community space. This sale is further validation of our value-driven investment strategy, and the property could not be placed in better hands,” said Jason Davis, Managing Director at Turnbridge Equities. “After years of shifting development plans for the Center, we are thrilled the space will be utilized to its full potential and turned into something the Town and community of Cary can be proud of.”

The blockbuster deal with Epic in a sleepy North Carolina suburb is unlikely to be a model to be repeated. Billion dollar game developers already operating in your own backyard are hard to come by. But, mall owners should be thinking about providing office space for the industries in their part of the world. In Los Angeles, Westside Pavillion shopping mall leased 584,000 square feet to Google, who will begin a 14-year lease when work, with a price tag of $410 million, is completed in 2022. Giant office leases in malls like Google’s are as rare as Epic’s outright purchase. For the most part, malls adding office space are doing so in small chunks, typically less than 50,000 square feet, in the form of coworking. 

Conceptually large corporate offices make sense in a mall setting. Malls can offer enormous spaces that are easily convertible and expandable. Amenities are already on site in the form of retail, food courts and often gyms. Your typical suburban mall is surrounded by a sea of parking, preventing that from ever being an issue for employers like it is in dense urban office space. Malls are built in high-traffic areas with ingress and egress from major thoroughfares and public transit by design. Office rents also tend to be higher than retail rents, offering a chance for owners to value-add to their asset. Replacing retail with office space is a competitive proposition. In light of the recent year in commercial real estate, the idea of mall to office conversion isn’t nearly as bright. 

For years, malls have been looking for a way to reverse course. In the world wrought by COVID-19, office buildings are now, too. Competition from office buildings for the few new leases is getting exceedingly competitive, renewals are having the red carpet laid out for them by their current building, offering increased build-out budgets and all manner of concessions. If mall owners are to sign office leases, they’ll have to pry them away from the office sector first. Years of toil have put mall owners in a financial position unable to seriously compete with what modern office providers are offering.

Video game developers may be systematically removing their product from the world of brick and mortar retail, but nearly all still need brick and mortar offices. Gaming, now the largest and most profitable form of entertainment worldwide, has established itself as a blue chip tenant of corporate real estate. Outsiders may not fully grasp how many people work to develop a game. Epic Games, far from the largest game developer, employs 2,200 skilled workers at 40 offices worldwide. For the owners of Cary Towne Center and nearby residents, converting the mall is a once in a lifetime deal. The deal shows how important it is for mall owners to think outside the box and offers hope for all the mall space currently sitting empty.

Associate Editor
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