Philly’s biggest mall owner wants to build thousands of apartments on its properties to help pay its debts

Facing more than $2 billion in debt and a wounded mall business, the Pennsylvania Real Estate Investment Trust has an audacious plan to change its fortunes: The region’s biggest mall owner wants to become a developer and put 5,200 apartments on six mall sites as a way to raise cash and bring shoppers and diners onto its properties.

CEO Joseph F. Coradino said he’s pivoting by necessity: “I used to be in the mall business and now I’m in the real estate business.” Indeed, his company, called PREIT, has proposed or discussed putting apartments in the region in the Exton Square Mall, Willow Grove Park, and Plymouth Meeting Mall in the Pennsylvania suburbs and more in the Moorestown Mall in South Jersey.

PREIT also has plans for apartments at the Springfield Town Center in Virginia and the Mall at Prince George’s in Maryland.

The timing might be good for PREIT. Housing prices and rents are soaring due in part to unmet needs. Freddie Mac, the giant mortgage buyer, last year put the national housing shortage at almost 4 million units, triggered by the construction decline after the 2008 Great Recession and extending through the pandemic.

PREIT’s strategy reflect those of other mall owners, who are replacing department store anchors with health-care facilities, hotels, entertainment centers, gyms, and apartments.

But PREIT faces epic challenges as it seeks zoning approvals in suburban municipalities where officials are concerned about sewer capacity, traffic, population density, burdens on local schools, and the broader vision for the properties.

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PREIT has little room to maneuver as it runs a gauntlet of zoning and township meetings. The company filed for bankruptcy protection in 2020. And while it emerged the same year, it still has debts of $2.3 billion, a good part of it mortgages on mall properties.

Wall Street has punished the stock, which has traded below $1 a share this year and could be delisted.

PREIT also cautions that 40% of its non-anchor leases either expire this year or next or are in holdover status, and the company could face lower rental revenue if it can’t renew those leases or find new tenants.

Still, PREIT executives point to recent positive signals: Through February, foot traffic jumped 14% over 2021 in its core malls. Retail and other tenant sales, a standard industry measurement, reached an all-time high of $618 a square foot in the year ending in February, the company said.

Coradino said that PREIT’s malls have recovered from the depths of the pandemic. As part of its core retail properties, the Philadelphia-based firm operates six malls with 6.1 million square feet of space around the region, and 11 malls in six other states and other parts of Pennsylvania.

“We like what we own right now. We have a pretty impressive portfolio,” Coradino maintained.

Richard Latella, an executive managing director at Cushman Wakefield whose team appraises 250 U.S. malls a year, said those centers have repurposed themselves. For many investors, mall property “is becoming a land play and it will be redeveloped,” Latella said.

PREIT is a big-time proponent of that trend. Its first phase of apartments comprises 2,200 units under contract, the company said. The land sales connected to them are expected within a year. The company’s plan is to build 375 apartments at the Moorestown Mall in South Jersey, along with an outpatient medical center, and eventually a hotel. A later phase could add hundreds of additional apartments.

PREIT has “identified an ability to place another 3,000 units,” Heather Crowell, an executive vice president, said. PREIT has not given a time frame for the second phase.

Among the apartments under consideration, PREIT has proposed an 11-story 503-unit complex for the Plymouth Meeting Mall near roads that carry 92 million vehicles a year.

It hasn’t gone smoothly.

Plymouth residents are concerned over increased sewer capacity and traffic. The site is zoned for a 150-unit retirement community and the zoning hearing board denied the application for the apartment complex, said Chris Manero, the chair of the Plymouth Township Council.

“So much of this has been occurring during the pandemic. There hasn’t really been a lot of public meetings where they have presented the idea,” Manero said. “We want to help them succeed but we also want to do what’s best for the township and its current residents.”

PREIT redeveloped the exterior of the Plymouth Meeting Mall but the shopping area inside the malls isn’t doing well, Manero added.

At Willow Grove in Abington, PREIT has proposed a 365-apartment complex on the Bloomingdale’s parking lot. PREIT says the project would help revitalize the mall with families living within walking distance of the mall’s attractions and prevent the repurposing of the center for an e-commerce warehouse or logistics center.

Lora Lehmann, an Abington resident who has reservations about the plan and has posted her concerns online, said that she would like to see the Willow Grove Mall thrive. “We all want the mall here,” she said. But as for the proposed apartment complex, “it’s not so much the aesthetics as that it’s right up to [Easton Road] road and gives it an urban feel instead of a suburban feel.”

Lehmann also has concerns that approving the mall would open the door to other apartments in the Willow Grove Park area.

That could happen. When PREIT asked the township to permit its apartment complex, township manager Richard Manfredi said the township couldn’t just approve zoning for one project. Officials now are considering an ordinance that would allow the construction of other apartments or condos in the Willow Grove Park area close to nearby train stations, Manfredi said.

Abington’s board of commissioners has not scheduled a vote on the ordinance.

Coradino said he feels good about the Willow Grove project.

He added that PREIT has not received “the level of acceptance” in Plymouth Meeting as it has in other locations. But PREIT has not given up.

“We are hopeful that the municipality will understand that the strongest path forward is a multiuse community hub,” a company spokesperson said.

In Chester County, PREIT’s Exton Square Mall opened in the 1970s and was renovated in 2000. And while Chester County has the highest median family income in Pennsylvania, Exton Square Mall — with 990,000 square feet of retail space — competes with one of the biggest malls in the nation, King of Prussia, and Wolfson Group’s Main Street Exton shopping-and-apartment center, which opened in 2001.

Defections have hurt. Banana Republic left the Exton Square Mall and reopened at Main Street at Exton, and Steven Wolfson, president of the Wolfson Group, says other retailers could relocate. But he adds that “I want [Exton Square] to be successful. I want them to do well because more customers come into the market and cross shop.”

Anthony Ernewein, 39, who works in logistics in Buffalo, N.Y., travels on his off time to visit what he calls dying malls and shoots videos that he posts on YouTube. Late last year, he visited Exton Square Mall. “I was shocked at what I saw as opposed to what I thought I’d see,” he said in a phone interview. He considered it a “well-maintained mall” that does not look drab like a lot of malls that he films.

Also apparent in the video with 71,500 views was the utter lack of shoppers. “It’s ironic that the mall is dead because it felt really inviting,” Ernewein said.

As the mall business declined at the Exton Square Mall, PREIT sold parcels for a Whole Foods supermarket and an apartment complex.

When PREIT came back to West Whiteland Township with a second plan for apartments, the township tapped the brakes. There were two fires and health violations in the food court in 2019. The township officials also noticed a decline in retail tenants. Among PREIT’s major malls, Exton Square has the lowest tenant occupancy rate, about 50%, according to its regulatory filings.

Fearing neglect, the township asked PREIT to develop a broader plan on what it would do with the site. “It looked like they were selling off pieces of the property to make money and stay afloat,” Rajesh Kumbhardare, the chairman of the township’s board of supervisors, said. He and other township officials met with PREIT in Philadelphia.

PREIT developed a plan for 2,000 new apartments, plus retailers, two hotels, and public space. Coradino confirmed that PREIT developed the master plan for the Exton Square Mall but as they were doing so, a buyer approached PREIT. The firm disclosed last month that it is selling the mall for $27.5 million.

Kumbhardare walked the mall recently and only “half the mall was lit. Nobody wants to open a store in a dark mall,” he said. He spoke with The Inquirer in the food court, which had only two open restaurants.

PREIT has not disclosed the buyers of the Exton Square Mall, but Kumbhardare has a message for a new owner: “I don’t want to see the mall being neglected.”