Pittsburgh Mills mall stability questioned
The imminent closure of the Sears Grand store at the Galleria at Pittsburgh Mills mall could have negative implications for the entire facility, retail analysts say.
But the mall owner is optimistic that a new retailer will brighten the mall's prospects.
“The inability to quickly fill that space will mean the owner will take a hit to income,” said Brad Doremus, a research and economic associate at Reis, a commercial real estate analysis firm. “Additionally, anchor tenants are important for the health of the entire mall, as these tenants can drive a lot of the foot traffic in a mall or shopping center that other tenants are able to benefit from.”
Joe Anthony, president and CEO of Zamias Services, the Johnstown-based owner of the mall, said he doesn't expect the space to be vacant for very long.
He said he spent most of the day Friday with a potential tenant. He wouldn't disclose the store.
“It's someone I think would do very well and be welcomed with open arms,” Anthony said. “We'll do our very best to fill that spot quickly.”
The Sears store and Auto Center will close in mid-January. Sears Holdings said the closure is part of the company's strategy to reduce expenses and change its image.
Sears occupies about 19 percent of the mall's floor space so the store's exit will leave the Mills mall with about 65 percent of its retail floor space occupied, according to a property analysis by Trepp, a leading provider of information and analytics on the commercial real estate and banking industries.
Anthony disputes Trepp's numbers, saying the mall is 90 percent occupied.
Doremus said there are malls that survive on less than 65 percent occupancy, but success depends on the mall's individual situation.
Plus, Mills has debt on the property, including a note due in the spring. So, a high vacancy rate is a concern, he said.
“They could potentially have to get creative with ways to utilize the space and make it attractive to potential tenants,” Doremus said.
Nationwide, the vacancy rate for neighborhood and community shopping centers was 10.3 percent, according to a Reis third quarter analysis. In the Pittsburgh market, the vacancy rate is 7.7 percent.
“In terms of losing a large tenant, it can be detrimental to a mall in terms of losing cash flows (and) foot traffic,” said Trepp research analyst Sean Barrie. “Some other tenants could be in co-tenant loans, which have a clause allowing a tenant to leave if their co-tenant does the same.”
Alan Caplan, owner of Petland in the Mills mall, said he is concerned that when Sears closes it could hurt the pet store's business, too.
“We're near where Borders was. When it went out, I didn't think it would affect us, but it did — about 10 percent,” he said. “We have to rely on our own merit, but people are in the mall for a reason and that's one big one leaving now.”
Barrie noted that Sears' closure will come just months before the mall's commercial mortgage-backed security (CMBS) loan is to mature in April. The loan backs 8.5 percent of the deal.
The date a loan matures is when the principal amount of the debt becomes due and is repaid to the investors and interest payments stop.
The $133 million loan was modified in 2012. The maturity date was pushed from January 2012 to April 2015 and the interest rate was lowered.
Barrie said investors will be watching the Mill's loan as April approaches because losing a tenant could affect the value of the note. Because it's six months down the road, investors do have breathing room, he said.
None of the analysts who spoke to the Valley News Dispatch had any concern about Zamias defaulting on the loan.
Anthony said he's not worried about the mall's fate.
“Frazer Township and people who come to the mall have always been supportive,” he said. “We're not the only commercial property in the country that's had setbacks since 2008. The good news is that the economy is making a comeback.”
Troubled past
The Mills has struggled since it opened in July 2005. The facility never lived up to what was promised.
A NASCAR SpeedPark proposed for the Pittsburgh site never materialized; nor did an indoor water park-hotel. Several establishments closed about a year after the mall opened, including Lucky Strike Lanes, a bowling alley and restaurant. Three restaurants that later opened in the space eventually closed, too.
More recently, Borders bookstore closed in 2011 when the company went bankrupt. Other stores like Lovesac Furniture, Forever 21, Brooks Brothers and Guess left the mall over the years.
When it was first announced, the Mills mall was touted to become a major attraction similar to the Arundel Mills in Baltimore — also a Mills Corp. project.
Zamias was the original developer of the Pittsburgh Mills shopping complex and the project later included the Mills Corp. Later, when Mills Corp. experienced financial trouble, it sold its share to Zamias in 2007.
A 20-year deal was struck between Mills, Frazer Township, Allegheny County and Deer Lakes School District to defer a portion of property taxes to pay for the new $21 million Route 28 interchange leading to the mall as well as needed infrastructure like water and sewer lines.
Many of the Mills malls are primarily outlet facilities, like Grove City. Pittsburgh, however, is a traditional retail mall.
A distinctive feature of Mills developments are dining and entertainment options not found in traditional enclosed malls. The Baltimore development includes a movie theater, a nightclub with bowling alleys and dance floors and a Medieval Times dinner theater featuring knights jousting on horseback. A casino opened there in 2012.
About 14 million people visit the Arundel Mall each year, making it Maryland's No. 1 tourist destination, according to the West County (Md.) Chamber of Commerce.
No data was available on how many people visit the Pittsburgh Mills mall annually.
It's unknown who Zamias might woo to replace Sears, but it might not be a hard sell, said Burt Flickinger, managing director of Strategic Resource Group, a retail industry consulting firm.
“The Galleria is a valuable lease and will be coveted by a number of retailers,” he said.
Other anchor tenants include Macy's, whose lease expires next year; Cinemark Theater, which has a lease through 2020; Dick's Sporting Goods, with a lease that expires in 2021; and JCPenney, expiring in 2025.
Jodi Weigand is a staff writer for Trib Total Media.
