April 17, 2024

Square Feet: Rackspace Revitalizes a Defunct Mall Into an Unorthodox Tech Campus

“I thought, This is going to be awesome!” the infectiously enthusiastic Mr. Weston said of his idea five years ago to move Rackspace’s operations to the defunct Windsor Park Mall in northeast San Antonio. “But everybody else pretty much thought I was crazy.”

Today, his idea to move his company to the very mall where he got the blue ruffle tuxedo he wore to his junior prom seems more innovative than insane, with 3,200 Rackspace employees keystroking in cubicles set up where retailers like J. C. Penny, Zales, Casual Corner and Piercing Pagoda used to be. The project suggests that there might be hidden opportunities in the nation’s glut of dead and dying malls and represents one of the country’s largest and quirkiest recycling efforts.

As ruefully documented on the Web site Deadmalls.com, the recession has shuttered scores of enclosed malls in the United States, and estate analysts at the CoStar Group predict that at least 10 percent of the remaining 1,500 malls will fail in the next few years. This is despite recent improvements in retail sales, because shoppers these days are more likely to visit free-standing stores or strip centers than invest time and effort entering and navigating a mall.

Most dead malls are razed, but some have been repurposed, like the Penn-Can Mall in Cicero, N.Y., which now houses several auto dealerships. Malls in Florida, Massachusetts, Michigan, Mississippi, New Jersey and Ohio have become mixed-used spaces, incorporating apartments and unconventional tenants like government offices, churches, medical clinics and satellite university campuses. Rackspace’s mall conversion, though, is unique in that it is the exclusive owner and occupant.

Mr. Weston was in a bind in 2007. Rackspace had outgrown the 200,000-square-foot office space it had leased just two years earlier in northwest San Antonio. The growing company, founded in 1998 in a garage apartment, was adding 600 employees a year.

And these employees, who call themselves Rackers, were cramped, cranky and craving a corporate campus like those of their competitors Amazon, Microsoft and Google. Needless to say, they were not enthusiastic at the suggestion that they decamp to a decrepit suburban mall, despite Mr. Weston’s assurances that it would be “totally cool.”

“A lot of Rackers worked at Foot Locker in the mall, and the last thing they wanted to do is go away to school, get the fancy degree and come back and work at the mall,” said Lanham Napier, the chief executive at Rackspace, who admits that he shared their resistance. “I thought Graham was nuts,” he said.

There was also some trepidation that the frugal Mr. Weston just wanted cheap office space and wasn’t going to do much more than slap a coat of paint on the mall and set up card tables and folding chairs as office furniture.

Despite an estimated net worth of $1.2 billion, Mr. Weston, 48, lives modestly with his wife and three children in a 2,300-square-foot double-wide trailer on the banks of the Guadalupe River just outside of San Antonio. In addition to being a successful dot-com and real estate investor, he descends from British nobility on his mother’s side and Canadian grocery magnates on his father’s side, whose holdings include Twinings tea, Karo syrup, Fleishmann’s yeast, Fortnum Mason and Selfridges.

Mr. Weston was indeed looking for a good deal, but he also had a grand vision of creating a tech mecca comparable to Austin’s so-called Silicon Hills, located 60 miles east of the mall and home to Dell and Hoover’s. He hired the New Urbanism pioneer Andres Duany to conceive a master development plan emphasizing diversity, sustainability and walkability.

“I grew up on a cattle ranch not far from the mall, and it was where we came as kids,” the boyish and bespectacled Mr. Weston said. “Rackspace desperately needed more space, true, but I wanted us to be leaders in the community, not just squatters.”

Undeterred by his employees’ opposition, he negotiated to buy the mall for a bargain-basement $27 million. Rackspace also received $72 million in tax abatements and development grants from the State of Texas and the City of Windcrest, a struggling suburb adjacent to the mall. As a precursor to the deal, Windcrest had assumed taxing authority on the property from San Antonio. Windcrest, which has a population of 5,600, had been losing $100,000 in tax revenue annually since the mall closed in 2005.

“Mr. Weston was a tough negotiator and was certainly taking care of his company,” said Ray Watson, who was the executive director of the Windcrest Economic Development Corporation at the time. “We started out offering about half of what they ended up getting, but the good thing is that they took care of the community.”

Article source: http://www.nytimes.com/2012/10/31/realestate/commercial/rackspace-revitalizes-a-defunct-mall-into-an-unorthodox-tech-campus.html?partner=rss&emc=rss

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