Observers say foreclosure proceedings filed Wednesday against the owner of the Pittsburgh Mills mall are not yet cause for alarm.
“It's really not uncommon,” said Sean Barrie, a research analyst with New York City-based firm Trepp LLC that provides market research for the real estate and banking industries.
Barrie pointed to nine other commercial properties in the Pittsburgh region believed to be in some form of delinquency as of last month.
In addition to the Galleria at Pittsburgh Mills, two other local shopping centers appear on his company's delinquency list: Heights Plaza Shopping Center in Harrison, which also is in foreclosure proceedings, and The Shoppes at Pittsburgh Mills, a standalone strip shopping center at the Frazer mall complex. The out parcel, which has a different owner from the mall, was in foreclosure when it was sold a year ago.
The mall and surrounding properties involved in the foreclosure are owned by Pittsburgh Mills LP, which ultimately is owned by Zamias Services Inc. of Johnstown.
Trepp research indicates the mall's ownership group still is working with Wells Fargo Bank and an intermediary called a special servicer to negotiate new terms for the $133 million mortgage, whose maturity date of last April was extended to this month.
Wells Fargo on Wednesday filed a foreclosure notice in federal court in Pittsburgh seeking repayment of the loan and interest totaling $143 million.
The bank's complaint seeks a receiver to be appointed to operate the properties owned by Zamias until they can be sold.
Involved in the case are 11 parcels that include the mall except for Macy's; the mall's primary parking lots; and several pieces of undeveloped land, totaling 126 acres plus the development's roads.
The surrounding shopping centers, restaurants and big-box stores are not involved.
“It's not out of the ordinary for the lending bank to dual-track foreclosure while the loan's special servicer seeks out a resolution,” Barrie said. “The lender does this so, in case the servicer decides foreclosure is the ideal measure, most of the logistics are already completed.”
Barrie said the special servicer still is working to negotiate a new tenant, believed earlier this year to be Boscov's department store, to fill the Sears Grand store that closed in January.
The large anchor's spot — larger than 2 1⁄2 football fields — accounts for nearly 19 percent of the mall's retail space.
Trepp's October report on the status of Pittsburgh Mills also noted a “development opportunity regarding the release parcel.” Barrie could not provide more information on what that involves.
An unidentified woman who answered the phone at Zamias Services said the company had no comment and refused to put a reporter in touch with Joseph Anthony, Zamias' president, CEO and company spokesman.
A Wells Fargo spokeswoman and attorneys from the law firm Dinsmore & Shohl, who are representing the bank in the foreclosure case, did not respond to requests for comment.
No tax impact
Township, school district and county officials indicated they're watching the developments, but aren't yet overly concerned.
“We know these types of things can ebb and flow,” said Deer Lakes School District spokesman Jim Cromie. “In the short term, it doesn't really impact us very much. About 80 percent of the (property tax) money goes to bonds.”
In 2002, Allegheny County, Deer Lakes and Frazer officials entered into a tax increment financing (TIF) agreement that funnels the majority of property tax revenue collected from the mall for 20 years into bonds.
The bonds are being used to pay for the $50 million in road, utility and other infrastructure improvements needed to make the mall a reality in 2005.
“While we will continue to monitor these proceedings, the impact on the county will likely be minimal,” said Bob Hurley, director of Allegheny County's Department of Economic Development, in a statement. “In the majority of outcomes, any new purchaser or owner would have to take on outstanding unpaid real estate tax obligations, if there are any.”
Allegheny County property records indicate the Pittsburgh Mills LP is current on its property taxes, which were nearly $700,000 in county real estate tax this year.
Trepp reported the mall's total property tax in 2013 was nearly $4 million.
Hurley indicated as long as the taxes are paid, there is no direct impact on the TIF.
“The property owner has no obligation to the TIF, except the obligation to pay real estate taxes like any other property owner,” he said.
Earlier foreclosure
Both Barrie and Frazer Supervisor Lori Ziencik noted foreclosures aren't uncommon — in fact, one already occurred at one of the out-parcels at Pittsburgh Mills.
In December 2013, Wells Fargo foreclosed on The Shoppes at Pittsburgh Mills, the shopping center located between the mall and the Lowe's Home Improvement store that includes Mattress Discounters, Bob's Sub, sweetFrog frozen yogurt and a Great Clips hair salon.
Wells Fargo alleged the plaza owner, Wisconsin-based Rowen Petroleum Properties LLC, owed $2.9 million after defaulting on a loan.
The property was moved into receivership before Wells and Rowen entered into an agreement last November to sell the plaza to its current owner, Delaware-based CSMC 2006-CS Retail2015 LP.
Worrisome statistics
Barrie said filling the vacant Sears store would go a long way to restoring the mall's financial stability.
He said there are a few statistics that are worrisome for the mall's future: its occupancy rate and its debt service coverage ratio (DSCR).
Trepp puts the mall's occupancy rate at 83 percent, which is based on figures from one year ago. It doesn't include the vacant Sears store, whose lease doesn't officially expire until this month. That would lower occupancy to about 65 percent.
“Anywhere below 95 percent, you want to fill that space,” Barrie said.
Trepp's October report noted, “The current performance of the property indicates sales are flat, occupancy is declining, and occupancy costs are above market.”
Trepp lists the mall's debt service coverage ratio, or the comparison of revenue to debt, at 0.96. Barrie explained zero is the break-even point for an owner and anything under 1.2 sends up a red flag.
He attributed the reduced ratio to the loss of Sears.
“It's a cause for concern,” he said.
“Obviously, long term, it's imperative for Deer Lakes that the mall is viable over the long haul,” Deer Lakes' Cromie said. “We're very interested in it, because the success of Deer Lakes is tied to the success of that mall.”
Liz Hayes is a staff writer for Trib Total Media. She can be reached at 724-226-4680 or lhayes@tribweb.com.
