REAL ESTATE

PREIT accelerates efforts to improve portfolio quality and balance sheet

BY Melonie Messina

Philadelphia — PREIT announced that its recent sale of Palmer Park Mall marked the ninth lower-productivity mall sold by the company since having announced its plans to divest non-core properties in late 2012. These properties generated average sales per sf of $254 at the time of sale. The company also has four additional malls under contract with significant non-refundable deposits. Pro-forma January 31, 2016 portfolio sales per square foot excluding the assets sold or under contract for sale are $451.

In total, including several other non-core properties sold, the program has generated over half a billion dollars in gross proceeds, contributing to the company's reduction in its Bank Leverage ratio from 64.1% as of September 2012 to approximately 50% as of December 2015. Balance Sheet strengthening, in addition to portfolio quality, has been at the core of PREIT's efforts, having demonstrated a plan at its January 2016 investor day to reach below 47% leverage in 2018. The company has since repaid the mortgage loan on Valley Mall in Hagerstown, Maryland, increasing the pool of unencumbered properties supporting its borrowing capacity under the company’s line of credit.

Recently completed transaction for the company include:

• Saks OFF 5th at Springfield Town Center located in Springfield, Virginia.
• Round 1 Bowling & Entertainment at Exton Square located in Exton, Pennsylvania
• Dry Goods, a concept created by Von Maur, at Woodland Mall located in Grand Rapids, Michigan.

"PREIT is on track to achieve its goal of $500 per square foot in sales, advancing our progression along the mall REIT quality continuum intended to drive shareholder value through an improved multiple and share price," said Joseph Coradino, CEO of PREIT.

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REAL ESTATE

Now Trending: The Replacements

BY Jeff Green

There has been a great deal of discussion and analysis in recent years regarding the ongoing struggles of many traditional department store giants. Brands like Sears, J.C. Penney and Macy’s are scratching and clawing to continue to stay afloat, together with a number of big-box retailers that are also struggling to remain competitive in an evolving retail marketplace.

As more and more department stores and big-box locations go dark, owners and developers are faced with large gaps in shopping centers that need filling. The challenge is not just making up for lost square footage, it is in accommodating large formats and suboptimal layouts, and finding uses and tenants that add something new to the existing center. There have been a number of solutions to replace these fallen giants – strategies that have met with varying degrees of success – from redevelopment and restructuring, to backfilling with new and emerging retail concepts. Perhaps to consider the best fit for today’s marketplace is to reflect on what past solutions have emerged successfully and, in some cases, not so successfully.

Regardless of the specific strategy, it’s clear that owners and developers need to think strategically and creatively about how to fill those large, open spaces in their centers. But is that happening? Are new options being put in place because they work, or because they are simply available?

I think the biggest issue isn’t about tenancy or square footage–it’s actually one of perspective. You can’t prescribe the right solutions if you don’t fully appreciate the nature of the problem.

To do that, we first need to trace the struggling department store trend to its origins. The way many talk about these issues, you might think this has all just popped up out of nowhere in the last few years. But the idea of a mall losing its anchors isn’t new. The reality is that what is taking place in the industry today is the culmination of developments that have been percolating for at least twenty years. Prior to the acceleration of the department store and big-box struggles we have seen in recent years, the last time the decades-long trend experienced a spike was the late 1990s and early 2000s, when an economic slowdown cranked the Darwinian vise that was already applying pressure to a few extra notches.

Examples of adaptive reuse that emerged in the wake of that trend include medical and educational uses, some of which were successful – like the addition of a new offsite campus for the Vanderbilt medical center on the second floor of the 100 Oaks Mall in Nashville, Tennessee – and others that didn’t work out – such as the attempt at adding a community college facility to the University Mall in Tampa, Florida.

Today, the industry is focused on looking at alternative retail and entertainment concepts, along with multifamily and hotel. But the “right” solution is about understanding what works for each specific shopping center. Some of the conventional wisdom today was barely on the radar just a few short years ago. Unfortunately, that’s a continuation of a long-term pattern that has plagued the industry: the next big thing comes along, everyone jumps on board until the bubble pops – and then on to the next next thing! History has taught us that we have to be extremely careful about evaluating an asset from a local and regional demand perspective.

While many centers that are losing anchors are turning to new experiential entertainment components, many of those concepts are unproven and may face their own issues adapting to social changes. These concepts are increasingly popular when it comes to filling these large available spaces. But will they bring new visitors? Will they get them to stay longer? And is it a cross shopping opportunity?

Knocking down a vacant anchor and replacing it with new restaurants and a selection of specialty retail has also worked–to a point. But even that can easily become oversaturated. Food uses are not a panacea for a mall – they have to be one of a number of strategies when it comes to potential redevelopment opportunities.

We tend to go from one potential fix to another in a very global sense, at times losing sight of on-the-ground elements that can and should play a critical role in decision-making. That’s not to say that any of the solutions discussed above can’t work – many can and will work very well – but each case has to be studied very carefully. Context is so critical. Understanding each individual market: what are the voids in the market–and how can you fill them? And that assessment needs to encompass not only the retail marketplace, but also the voids that exist in other commercial and residential segments.

Today, the retail real estate industry is doing what it always does: looking for an answer and searching for a formula. The reality is that there isn’t one–at least not a one-size-fits-all variety. Customers don’t shop that way. They only respond to what they want and need. When it comes to solutions, creativity and analytical rigor is key. However, when a mall is repositioned long term, it has to fit its market — taking into account everything from demographics to future growth potential and finally to the changes likely to occur in the retail consumer, both short and long-term.

Retailers and retail real estate developers need to avoid making the same mistake that the department stores they are replacing made–the mistake that contributed to their downfall in the first place: inflexibility, and an inability or unwillingness to adapt. The last thing you want to do is to solve a problem caused by a failure to abandon an outdated formula by being too formulaic.


Jeff Green, president and CEO of Jeff Green Partners, combines more than 30 years of retail industry experience to provide comprehensive consulting services to national retailers, developers, shopping centers and health care facilities. The firm specializes in shopping center feasibility, distressed center repositioning, retail real estate planning and investing, medical retail consulting, retail expansion planning, location analysis, commercial land use and urban redevelopment. To learn more, visit Jeffgreenpartners.com or connect with Jeff at [email protected].

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REAL ESTATE

Halstead Property names new president

BY Melonie Messina

New York — Halstead Property announced the promotion of Richard J. Grossman to president. In his new role, Grossman will work closely with Halstead CEO Diane M. Ramirez and will also continue to oversee the Village and SoHo offices together with Sara Rotter, executive director of sales for Downtown.

“Over nearly three decades, Grossman has built an impressive track record of strategic, operational and commercial accomplishments in the real estate industry. He has proven to be a successful and trusted leader and brings to this position a strong reputation for developing and inspiring the Halstead agents and executives,” stated Arthur W. Zeckendorf, co-chairman of Terra Holdings, parent company of Halstead.

“It gives me great happiness and excitement to announce Richard’s new leadership role of President. We’ve been working very closely for the last year and he is a very trusted and strategic colleague who is the ideal fit for the President role,” added Diane M. Ramirez, CEO of Halstead. “A highly valued member of the Halstead Executive Team for nearly a decade, Richard successfully ran the Village and SoHo offices together with Sara Rotter and under their careful guidance and direction, the Downtown offices have been very successful and profitable, expanding to accommodate more than 180 agents.”

Grossman formerly served as the EVP, senior managing director of Halstead Property where he cultivated a solid network of loyal and top producing agents in the Downtown Offices. Agents under his leadership have won numerous first, second and third place awards in the Real Estate Board of New York Deal of the Year awards ceremony. In addition, he mentored the agents that won Real Estate Board of New York's designation of the Rookie of the Year in 2008, 2011, 2012, and 2013.

Prior to joining Halstead Property, Grossman was the SVP and director of sales for Heron Properties, where he was responsible for the creation of the sales division of one of New York's most prestigious management firms. Before Heron, Richard was the director of sales for Hahn & Mann Realty, Inc.

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