News that the Sears store at Ala Moana Center will close next year overshadowed a story that will eventually have a much greater impact on the local economy: the total redevelopment of the Ewa end of the state’s largest mall.

Local real estate experts say this is a rare opportunity for mall owner General Growth Properties Inc. to unlock the value of the prime real estate at the Ewa end of the complex and substantially increase revenue for the center, which commands annual rents of $200 per square foot.

Chicago-based General Growth is investing $500 million to buy back Sears’ lease to the 340,000-square-foot space and redevelop the site for a more profitable use.

"They’ll be able to change the caliber of the mall," said Jeff Arce, a partner at the MacNaughton Group. "Sears’ reputation is a little blue-collar. It really will allow them to upgrade the mall and change what is perceived now as a maybe a little tired tenant."

Sears, an anchor tenant since the 1959 opening of Ala Moana, announced Thursday it will close the store sometime next year.

General Growth said in addition to redeveloping the Sears space, it plans to add another 270,000 square feet at Ala Moana for smaller retailers, according to New York investment banking and equity research firm Sandler O’Neill & Partners LP.

The deal provides an opportunity for Ala Moana to bring in popular mainland retailers to Hawaii for the first time.

Long-term anchor tenants such as Sears typically have lease provisions that allow them to prohibit the addition of competing department stores or other development surrounding its properties. With any restriction now out of the way, development options are almost limitless, real estate analysts say.

"They could potentially put in a couple of big users or a lot of smaller users now that they have the flexibility to do whatever the market (dictates)," Arce said. "I wouldn’t even want to speculate on what they can do because it’s almost unlimited."

The often underutilized parking structures adjacent to Sears could conceivably be converted into more stores, he added. Another possibility is building atop the store for a residential or mixed-use project.

Filling the space with a single user like Target, Kohl’s or J.C. Penney, all of which are looking to expand in the Hawaii market, would be another logical possibility, according to Steve Marlette, president of MC Architects.

However, a more profitable option would be converting the space into a multitenant extension of the mall, he said.

"I would suspect they could easily reformat the land, run the mall through it, open it up similar to the rest of the mall and stream another 20 or 30 spaces," Marlette said. "That would probably be the most lucrative way to do it. You may find two to three large tenants to take the large space. But you’re going to have a gigantic lineup of people that would take a series of smaller spaces."

Ala Moana is one of the nation’s most lucrative malls, with annual sales of more than $1 billion.

Smaller, non-anchor tenants typically pay substantially higher rents to be close to anchors that generate much of a center’s foot traffic, according to Mike Hamasu, director of consulting and research at Colliers International in Hawaii.

"The anchor generally pays a fraction of rent on a per-square-foot basis," he said. "By splitting up spaces, many smaller in-line tenants are likely to pay more rent than the anchor would."

Subdividing the space would follow a previous strategy by General Growth when its last large anchor, J.C. Penney, left the mall in 2003.

The mall owner completely redesigned the three-level J.C. Penney store that occupied 220,000 square feet to make way for at least 30 smaller stores and restaurants.

The move created significant opportunity for retailers, many of whom wait years for a coveted space at the state’s largest shopping center, whose stores earn more than $1,200 per square foot per year, or triple the earnings of the average U.S. mall.