Owner of former Echelon Mall, called 'slumlord' in Fla., taps overseas cash to become nation's biggest mall buyer

For a moment, Regency Square Mall in Jacksonville, Fla., seemed on the cusp of a revival, with new out-of-town owners presenting themselves as specialists at resuscitating moribund retail centers.

But those owners — who have since become the nation's biggest mall buyers, with properties including Camden County's troubled Voorhees Town Center — never delivered the hoped-for renewal of the former Northeast Florida shopping mecca.

Instead, Namdar Realty Group, based in Great Neck, N.Y., is accused in a pair of lawsuits of failing to invest in Regency Square's most basic maintenance, resulting in leaky roofs, broken electrical systems, and a roach infestation that have kept tenants from moving in.

"Landlord is an absentee landlord with a reputation as a 'slumlord,'" reads one of the suits, filed in Circuit Court for Duval County by the operator of a home-furnishings outlet. "Landlord's continuous breaches and material failures have rendered the premises unrentable."

That sentiment resonates in Voorhees, where officials have taken steps to place the Town Center, once known as Echelon Mall, into different hands after watching it fall into disrepair since Namdar bought it in 2015 from Philadelphia-based Pennsylvania Real Estate Investment Trust (PREIT). In other parts of the country, malls acquired by Namdar have suffered sewage backups and security problems.

These instances of disinvestment and decay come as Namdar continues to snap up malls crippled by the decline of brick-and-mortar shopping at fire sale prices, many of them from big retail landlords eager to get the low-performing properties off their books.

Since 2012, Namdar has added 43 malls to its portfolio, making it the country's biggest buyer of the retail centers during the period, according to an Inquirer and Daily News analysis of data maintained by the CoStar Group, a market tracker. Since January alone, it has bought six malls, the most recent being the Galleria at Pittsburgh Mills in western Pennsylvania.

The acquisitions, at a total cost of more than a half-billion dollars, were made in Namdar's name or that of partner Mason Asset Management, also based in Great Neck.

Last month, the company was part of an investor group that tried to buy Bon-Ton Stores Inc. of York, Pa., out of bankruptcy.

Behind Namdar's operations are cheap debt from overseas investors, cash from piecemeal sales of land broken off from its mall properties, and a business model based on a gamble that even the nation's worst-performing retail centers can make money if little enough is spent on their acquisition and upkeep.

Namdar "bought these deals originally on basically a formula that said, 'I can get all my money out in three years, five years, seven years, and then essentially own the dirt for nothing,'" PREIT chief executive Joseph Coradino said Tuesday at a real estate panel in Philadelphia.

Since 2012, malls acquired by Namdar traded at an average of $27.35 a square foot, compared with $149.10 for all retail center transactions tracked by CoStar during the period, according to the Inquirer and Daily News analysis.

The Voorhees property is among nine malls that Namdar bought from PREIT between 2013 and last year, making the Philadelphia company its biggest provider of the retail centers.

PREIT's sales to Namdar and others came amid a campaign to drive up its portfolio-wide average sales per square foot — a metric important to investors — by shedding its least productive properties and concentrating on its core assets, such as Cherry Hill Mall and the yet-to-open Fashion District Philadelphia at the former Gallery at Market East shopping mall in Center City

PREIT sold Voorhees Town Center to Namdar in October 2015 for $13.4 million after buying it for $18.3 million 12 years earlier and plowing about $80 million into its redevelopment, the Philadelphia Business Journal reported.

Mario DiNatale, Voorhees Township's director of community and business development, said that since buying the property, Namdar has failed to repair broken escalators or replace burned-out light bulbs, while cuts to security staff have left tenants feeling unsafe.

Because of the property's deteriorating condition, retailers including Burger 21 and the Things Remembered gift shop have fled the mall, he said.

Sonny Sekhon, owner of the Growing Smiles pediatric dental office at the property, said his unit's long-leaking roof has yet to be repaired. "It's taking forever for the mall ownership to come and address it," he said.

The mall's occupancy stood at 60 percent as of Dec. 31, 2017, down from 75 percent on Sept. 30, 2015, when it last appeared among PREIT's assets on an earnings report, according to disclosures by the companies.

The Voorhees Planning Board last month recommended that the township grant itself the authority to seize the mall through eminent domain to pressure Namdar into selling the property for redevelopment, said DiNatale, whose office is in a township-owned section of the mall. Voorhees' full Township Committee will vote on the proposal Monday.

"It's a tenuous situation here," DiNatale said. "This current owner will only do what they absolutely must do and not a drop more."

Coradino said the mall buyer may not have anticipated how quickly the properties would lose their department store anchors. Retail brands including Macy's, Sears, and JCPenney have rapidly reduced their footprints in recent years, leaving behind vast amounts of empty mall space empty.

"I don't think they anticipated that quick of a decline in the department store business," he said at Tuesday's panel, held by commercial real estate firm Newmark Knight Frank. "I don't think anyone realized how fast it was going to happen."

Namdar referred requests for comment to Mason Asset Management. Mason chief executive Elliot Nassim disputed DiNatale's characterizations, saying his team is working closely with the township to redevelop the property. He asked that any other questions be sent via an email, to which he did not immediately respond.

Voorhees wouldn't be the first local government to involve itself in one of Namdar's troubled malls.

Less than two years after Namdar bought North Carolina's Salisbury Mall — now called West End Plaza — out of foreclosure for $2.5 million in early 2012, the board of commissioners for Rowan County voted to pay $3.43 million for most of the property to convert to government offices, the Salisbury Post reported.

After the purchase, officials had to spend $1.3 million to replace the mall's leaky roof, Michael Julian, a local businessman currently running for a county commission seat, said.

Daniel Kleeburg, who operated a theater at the Salisbury Mall, said that in the months after Namdar bought the property, raw sewage began backing up into his theater due to blocked pipes.

"Literally — pardon my expression — the crap hit the fan," said Kleeburg, who closed his business after Namdar ignored his repeated requests for repairs. "It went so south, so quick."

Northland Mall in Sterling, Ill., also experienced a rocky transition into Namdar's hands, with its entire management team and half its security staff quitting their jobs after the property traded at the end of last year, according to Sauk Valley Media, a local news outlet.

In January, police arrested the mall's newly hired maintenance manager on a preexisting warrant after he was spotted wandering — apparently drunk — into and out of the mall's shuttered JCPenney store, Sauk Valley Media reported. Two days later, he was seen stumbling through the mall a second time, now carrying bolt cutters, and was again removed by police.

Things had gotten off to a better start at Regency Square, which Namdar acquired in February 2014 for $13 million from Chicago-based General Growth Properties, now the nation's second-biggest mall landlord.

"We specialize in centers that are being run poorly," Joel Gorjian, Namdar's head of property acquisitions and sales, told the Florida Times-Union as the company's ownership of the mall hit the six-month mark amid a spate of new leases. "We find those where they're not putting enough into the center, then we add tremendous value."

But lawsuits filed by would-be tenants at the property don't portray a company bent on reinvesting in neglected malls.

In one of the suits, Jacksonville-based International Decor Outlet LLC (IDO) accuses the Namdar and Mason entities that own the mall of fraud and breach of contract for thwarting its plan to convert 200,000 square feet of vacant space into a direct-to-consumer marketplace for imported home goods.

Lawyers for IDO say in the lawsuit, filed July 2017 in Duval County Circuit Court, that the owners blocked the company from accessing the section of the mall it had leased when prospective marketplace subtenants came from abroad to view the space.

When the section was finally made available, its air-conditioning did not work, its roof leaked, and "several insects and other bugs, including cockroaches, were observed in the common area of the premises," according to the lawsuit, which seeks unquantified damages and the voiding of IDO's lease.

In a separate lawsuit filed in Circuit Court the previous month, founders of the Jacksonville Automobile & Motorcycle Museum accuse the owners of failing to fix a leaky roof, which kept them from getting an occupancy permit to open a car museum in a former department store space.

While Namdar allegedly neglects some parts of Regency Square, it has been cashing in on others.

In 2015, it earned $26.2 million through the sale of the mall's AMC Theatres multiplex to Kansas City, Mo.-based EPR Properties, according to the Times-Union. The following year, it sold retail space vacated by a Belk department store to the Impact Church for $7 million to become its headquarters and central house of worship, the paper reported.

In Voorhees, the company sold a one-acre section of the Town Center tract currently occupied by the Learning Experience preschool to an investor in Monmouth County, N.J., for $2.6 million in December 2017, according to records filed with Camden County.

In a presentation for investors in Israel, where Namdar raises money from bond buyers on the Tel Aviv Stock Exchange through affiliate Namco Ltd., the company touts its profits from selling off pieces of its properties.

But most of Namdar's income likely comes from a more traditional source for mall landlords: rent.

During a 2016 investor conference in New York, PREIT's Coradino said recent buyers of his company's malls could expect rates of return — or "capitalization rates" — of up to 17 percent, indicating low sale prices relative to anticipated rental income. At the time, PREIT was responding to shareholder pressure to quickly prune its portfolio of low-achieving malls.

Investors in retail real estate more commonly see returns in the 7 percent range, which was around the average rate during the first three months of this year on deals for U.S. malls, strip centers and other multi-tenant retail properties, according to a report by real estate tracker Real Capital Analytics.

PREIT's former malls — most in off-the-beaten-path markets and with department-store anchors bearing uncertain futures — traded at the higher rates because they were seen as riskier investments.

Namdar may have been willing to take on that risk because it was borrowing cheaply enough for the properties to generate lots of cash for the company before rental revenue cratered completely, thanks at least in part to its Israeli bond issue.

As of December 2016, affiliate Namco had raised 450 million shekels ($124.4 million) while paying interest of only 5.8 percent, according to a report published at the time by the Israeli newspaper Haaretz.

If a buyer tried to borrow money from U.S. investors to acquire out-of-the-way shopping malls, it would have had trouble finding any takers and certainly would not have found anyone willing to accept rates that low, said Thomas Gorman, a senior vice president at commercial real estate firm CBRE's capital markets unit.

The model seems to be working out in Voorhees, said the township's DiNatale, for Namdar at least.

"From what I see, they're turning a profit," he said. "Even if we're half-empty, we're also half-full."