Ten years ago, there were more than 1,100 enclosed shoppingmalls in the U.S. Since then, more than 400 have beenshuttered—become “ghost malls”—or have been repurposed for useother than retail space, such as for industrial, educational oroffice space, according to Yahoo Finance.

And although the trend may be slowing—commercial real estate tracker Reisreports the vacancy rate for regional malls declined to 7.9% infourth-quarter 2013, down from 8.2% in the previous quarter, andstrip mall vacancy declined to 10.4%, down from 10.5% in Q3—thede-mallification of America isn't likely to stop. About 15% of U.S.malls will fail or be converted into non-retail space within thenext 10 years, predicts Green Street Advisors, areal estate and REIT analytics firm.

Vacant or underpopulated malls and other large, desertedcommercial spaces are a unique challenge for insurance—especiallyagents and brokers who specialize in real estate coverage. We spokewith Evan Bull, national property practice leader at Burns& Wilcox Brokerage, where ghost malls are a niche market,about the unique trends and risks presented by vacant malls. Bull,who spent most of his career on the retail side, discussed ghostmalls and other vacant space not as a blight but an opportunity forthe industry.

Here he debunks some misconceptions about vacant malls anddiscusses how insurance can help property owners keep the ghosts atbay.

Myth No. 1: Ghost malls exist only in economicallydepressed regions.

Although pockets on the East Coast, Midwest and West Coast seethe most closings, ghost malls are a national issue and part of thelarger trend of vacant property, Bull says.

Although “Type A” malls–the “best of the best”—are not typicalcandidates for becoming ghost malls, the lower tier of “economymalls” can be vulnerable when real estate investors no longer findthem attractive investment targets, he says.

Bull, who spent 15 years in Chicago as a retailer brokerspecializing in property placement for clients like General Growth Properties, is intimatelyfamiliar with the challenges of insuring vacant property forclients until that property is renovated or sold for other use.

Myth No. 2: Insurers don't want to write coverage forghost malls.

Although this is true for the admitted market, which “doesn'tlike the risk,” there are plenty of players in the E&S spacethat are hungry for ghost malls and vacant property in general,Bull says. At last count, he noted more than 25 E&S insurers,including Lloyds of London syndicates, that are actively writingthe coverage, with an average property capacity for vacantbuildings of between $50 million and $100 million based onmarketplace averages, he says.

Because all vacant commercial properties are unique—malls differfrom schools or warehouses–manuscript property policies aretypically used for these exposures rather than ISO forms, hesays.

Premiums are based on a variety of elements such as squarefootage, type and quality of construction, security, thelength of time spent vacant, whether the mall is locked or boarded,condition of the sprinkler system, and whether utilities remain operative. Geographical risks also affect pricing,such as whether the mall is built on a landfill, or is in anearthquake or tornado zone. Information is then downloaded intoRisk Management Solutions modeling for pricing. On average for firecoverage alone, Bull is seeing a price range of a minimum of 50cents per $1,000 premium. Price negotiations begin after modelingis complete.

Myth No. 3: The biggest risk in covering ghost malls isarson.

Although fire (whether accidental or arson) is the first threatthat comes to mind with vacant property, deserted malls open up awhole new can of risk because of the sheer size involved.Boarded-up properties with huge square footage naturally attractvandals and the homeless, so vandalism and malicious mischief areamong the exposures, Bull says.

Geographically specific risks, such as earthquake in California,can add another level of risk to a ghost mall or other vacantproperty, increasing both risk and rates, Bull says. Ghost malls inthe Midwest were at major risk for freezing pipes and water damageduring last winter's deep freeze; and adjacent properties couldalso have an impact on risk.

To help mitigate risk, vacant property owners are required tohave all utilities operational and retain 24-hour paid privatesecurity to deter squatters and vandals, Bull says.

Myth No. 4: Most ghost malls are huge.

Before it was demolished in 2012, the massive Dixie Square Mall in Harvey,Ill., best known for location filming of “The Blues Brothers,” was one ofthe most infamous ghost malls in the country. But ghost malls canrange from huge locations like this to strip malls, and in manycases, the mall doesn't become completely deserted, but instead hasclosed stores or sections, Bull says. “I've been in mallswhere there is just a closed sign in some areas, and otherattraction properties remain in the mall,” he says. “They shut downsections and hope the economy rebounds so they can lease out thespace to other operations.”

Myth No. 5: All ghost malls are derelictproperties.

Although everyone has seen gruesome photo essays of desertedmalls covered with graffiti and rife with trees and weeds growingeverywhere (as in the urban decay photograph ofphotojournalist and activist ”Seph Lawless“), it's not in aproperty owner's best interest to let vacant property get to thatextreme, Bull says. To attract potential investors, owners mustmaintain general upkeep of the property to keep it attractive—and,in cases where retailers still operate in part of the mall, to makeit a place where people feel comfortable and secure.

Special thanks to photojournalist Seph Lawless (WWW.SEPHLAWLESS.COM), author of“BlackFriday.” Learn more on his Facebook page (WWW.FACEBOOK.COM/SEPH.LAWLESS).

Dead Mall Dictionary (source: DeadMalls.com)

Dead mall: a mall with a high vacancy rate (70%or less occupancy), low consumer traffic level, or is dated ordeteriorating in some manner.

Anchor: A large store in a shopping center,usually highly visible and a destination for shoppers. Anchors helpdraw consumer traffic to a mall.

Redevelopment: To change the architecture,layout, décor or other components of a shopping center to attractmore renters and profits. Redevelopment could be either remodelingan existing mall or repurposing it from retail space to office oreducational usage.

Labelscar: Fading ordirt left behind from a sign on or in a mall. Labelscars leave areadable marking, which is very helpful when identifying formerstores. (The term “labelscar” was brought to the forefront byPeter Blackbird in 1998 and is now widely used to describe thisphenomenon)

Sealed: When a mall islocked up, and closed to the public

Shuttered: When a mallis boarded up.

Enclosed: A mall witha common space or non-retail area that is part of the structure,which joins the stores. Usually the space is climate controlled,and has places for kiosks.

OpenAir: A shopping center in which stores are onlyaccessible via exterior entrances.

Greyfields: Malls where annual sales per square foot is lessthan $150, or one-third the rate of sales at a successful mall(coined by PwC and the Center for New Urbanism after the term“brownfields” for old industrial sites).

First-Class Mall: Regular operating mall.

Second-Class Mall: High vacancy, or non-traditional storeoccupancy

Third-Class Mall: Areas of entire mall sealed to the public.

Fourth-Class Mall: Shuttered or slated for demolition

Fifth-Class Mall: Redevelopment has begun or is completed.