Sam Kennedy [The Morning Call] / Bloomberg Businessweek – A decade ago, nearly every storefront was occupied inside Salisbury Township’s South Mall. Today, vacancies abound.
Of those spaces that are filled, a number aren’t even stores. One is a dance studio. Another is a dental office.
“De-malling” — that’s what retail analyst Jeff Green, president and CEO of Jeff Green Partners in Phoenix, calls it. He said the trend is playing out across the country: Malls unable to attract a sufficient number of stores are accepting non-retail tenants. They are transforming, he said, into “community centers.”
And that, apparently, is a business South Mall owner Pennsylvania Real Estate Investment Trust doesn’t want to be in.
Philadelphia-based PREIT disclosed in a regulatory filing Thursday it had received a non-refundable $10 million deposit for the sale of the mall. The transaction is expected to close sometime this year, according to the filing.
“We’re really paring our portfolio,” PREIT spokeswoman Heather Crowell said. “This wasn’t one of our core properties.”
She declined to name the buyer or give the full price. That information, she said, will not be made public until after the deal is finalized.
PREIT, a public company whose shares trade on the New York Stock Exchange, owns three-dozen malls, including Palmer Park Mall in Palmer Township. The firm also co-owns Lehigh Valley Mall and Whitehall Mall in Whitehall Township with Simon Property Group.
It used to own the Phillipsburg Mall as well. In late 2012, Mason Asset Management of Great Neck, N.Y., paid $11.5 million to buy the 574,000-square-foot shopping center, which straddles Lopatcong and Pohatcong townships.
Across its portfolio, PREIT has a non-anchor occupancy rate of 90 percent, earning $377 per square foot a year in sales, according to the company.
The occupancy rate of South Mall is comparable — as long as exterior tenants such as Ross Dress For Less at one end and Petco and other stores at the other end are included in the calculation. All told, the mall has 44 tenants, including several detached tenants such a Starbucks coffee shop in the parking lot.
In recent years, as the Lehigh Valley’s retail marketplace has expanded — with, for example, the introduction of the Promenade Shops at Saucon Valley and an upgrade at the Lehigh Valley Mall — competition for consumers and merchants has grown fierce.
The vacancies inside South Mall, meanwhile, have multiplied like gaps in an old-time hockey player’s smile. The loss of stores has eroded the mall’s reputation among teens and 20-somethings — both key retail demographics.
At the same time, the number of national retail chain stores is declining, and the growth of online retail has come at the expense of brick-and-mortar stores.
“All this has more of an effect on the distressed mall, which is what I’d call this mall,” Green said.
South Mall was built over time, starting in the early 1970s. Hess’s of Allentown, the mall’s original owner, built a free-standing store at the location in 1971.
An expansion in 1975 added a now-gone Weis’s Food Market and other stores in an enclosed mall. The last major renovation was in the early 1990s.
During the winter, South Mall showed signs of strain. The roof sprang leaks, and shoppers had to dodge water buckets throughout the promenade.
“It looks like it needs a facelift,” Green said, “and with that comes long-deferred maintenance, meaning it probably needs a new roof.”
And yet, he continued, South Mall also has a lot going for it. It has a prime location and relatively strong anchor and secondary tenants, including Bon-Ton, Stein Mart and, significantly, the recently added Ross.
“That’s a pretty good lineup,” he said
Other malls that have gone the “community center” route have leased space to a wide variety of tenants, from public libraries to community colleges.
It’s not necessarily a bad thing, Green said. “It’s just that their life as a traditional regional mall has reached the end of the road.”
— Built: Early 1970s; free-standing Hess’s location built in 1971
— Location: Lehigh Street, Salisbury Township
— Occupancy rate: About 90 percent
— Key tenants: Bon-Ton, Stein Mart, Ross Dress for Less, Petco
— Ownership: Pennsylvania Real Estate Investment Trust (sale pending)