Why did 2 big U.S. real estate operators take over post-bankrupt Philly mall owner PREIT?

The Pennsylvania Real Estate Investment Trust (PREIT) is coming out of its second bankruptcy in four years as a private company controlled by a small group of investment firms that purchased its debt. The new owners will look to squeeze more profit from its legacy collection of Philadelphia- and Washington-area shopping malls, some of which have struggled in the age of online retail.

The company has attracted a pair of leaders with experience running big national property companies.

Glenn Rufrano is the new executive chairman of the board and most recently was chairman of the International Council of Shopping Centers, which he said made him bullish on the future of in-person shopping.

“I feel good about retail, and that’s one of the reasons I find this a good opportunity,” Rufrano said. “I like the fact that it’s a smaller group of malls that you can really focus on. I like the portfolio in total and believe there is a value to be added.”

The company’s new ownership is led by Redwood Capital Management and Nut Tree Capital Management, both based in New York City, which provided $130 million in financing as part of the bankruptcy reorganization. Each is represented on the company’s new board.

PREIT paid its former outside shareholders $10 million to go away — a fraction of the company’s 2017 market value of nearly $2 billion.

The tenure of Joseph F. Coradino, chief executive since 2012, ended April 1. He will be retained as a consultant for six months by the new owners and can expect a severance payment of at least $4 million, according to an Inquirer’s analysis of 2023 PREIT financial documents. The company’s former board members, who lost a shareholder vote of confidence last year, have been relieved of their duties as well.

Coradino did not respond to a request for comment.

Jared Chupaila, based in Chicago, will take over as CEO. He was previously CEO of Toronto-based Brookfield Properties, one of North America’s largest landlords, whose investors include Pennsylvania’s state pension funds.

Rufrano is based in New York and has an expansive background in the commercial property sector. He reorganized the former property giant VEREIT Inc. after a chief financial officer went to prison for exaggerating profits, then sold it to San Diego-based Realty Income in 2021. Rufrano earlier ran two smaller real estate investment trusts and the brokerage Cushman & Wakefield.

While neither Rufrano nor Chupaila plans to move to Philadelphia, Rufrano says PREIT will remain anchored in the region.

“The company will remain based here, PREIT will be its brand, and Jared does have a young family in Chicago, but he will be here every week and will spend most of his time here,” Rufrano said. “I take the Acela, and I’m here in an hour and 10 minutes, so this is pretty easy. It’s very important to be in the field to see these assets, understand these assets, and know the people and the properties.”

PREIT reduced its debt load in bankruptcy reorganization by $800 million but still has to manage payments on more than $1 billion in other debt at today’s higher rates. In bankruptcy, PREIT walked away from the struggling Fashion District of Philadelphia, leaving that to its partner, Macerich, which supports the Sixers’ plan to build its new arena on part of the site.

That leaves PREIT with a portfolio of 13 malls in Pennsylvania, New Jersey, Maryland, and Virginia. Some of the properties, especially the Cherry Hill Mall, are among the biggest shopping destinations in the Philadelphia region. Others like the Exton Square mall, which PREIT has tried to sell, have been struggling with low occupancy levels.

Rufrano said Exton shows promise for redevelopment, citing PREIT’s success in bringing nonretail uses to malls like Moorestown — a favorite example in Coradino’s turnaround plans last year — where health-care and residential development is underway to buttress a fading shopping center.

“On the outside, some of these assets look pretty rough, but if you get into the inside, there’s more here than you know,” Rufrano said. “There are good sites that need new forms of real estate to accompany a smaller contingent of retail: residential, health care, hotels.”

Rufrano says his recent perch at the International Council of Shopping Centers gave him industry contacts and fresh shopping data that show consumers returning to in-store retail with vigor.

He said he and Chupaila hope to convince their investors to put more money into improving popular malls like Cherry Hill and redeveloping less fruitful sites with additional uses — apartments, medical centers, restaurants — while chain stores like Five Below and HomeSense continue to replace locations abandoned by some of the older retailers that have failed or cut back in recent years.

The first task facing Chupaila and Rufrano will be crafting a business plan, which he anticipated would be ready by late spring or early summer. He said he did not yet know whether that would mean layoffs, adding that PREIT staff had done an excellent job replacing departed anchor stores.

“My view is that the people here have done a pretty good job,” Rufrano said. “People are a source of value here as well as the assets.”

PREIT’s share price fell by over 99% over the course of the pandemic, leading the company to be delisted in December 2022 from the New York Stock Exchange for the first time since 1960.

Rufrano said that the two bankruptcies did give him pause but that both were partly caused by external factors. PREIT had already been struggling with several anchor tenant vacancies and too much debt when the pandemic struck in 2020, derailing its launch of the Fashion District of Philadelphia.

More than 80% of stores stopped paying rent during the worst of the pandemic — “when I say that, I get heart palpitations,” Rufrano joked — although he says payments are back in the normal range. PREIT first filed for bankruptcy in November 2020, and when it emerged, liquidity had dried up and soon interest rates were soaring.

But Rufrano said that the state of PREIT’s malls is largely good, with occupancy over 90%. He said that selling assets en masse was not part of the plan, at least for now.

“They went through bankruptcy before; they want to get it right this time,” said Charles Elson, Delaware-based corporate-governance consultant. “It’s not a good time to be in shopping malls, [but] these guys [Rufrano and Chupaila] wouldn’t do this if they thought there wasn’t money to be made.”