Gallery mall to become Fashion Outlets of Philadelphia

JOSEPH CORADINO wants to bring new life to the now ghostly, half-empty Gallery at Market East.

He envisions a gleaming, light-filled mall with new storefronts facing Market Street and sidewalk cafes cropping up to line the gritty stretch between City Hall and Independence Square.

No longer will the main entrance feel like descending brick steps into a pit. A new, glass-enclosed entrance will be at sidewalk level.

"When you stroll from 801 Market down to the convention center, you will encounter an alive, vibrant, accessible and welcoming streetscape," said Coradino, the South Philly-born CEO of the Pennsylvania Real Estate Investment Trust, which operates the Gallery.

But before the long-awaited plans go forward - "We've been working toward this for 12 years now," Coradino said yesterday - at least three government agencies must approve the tentative plan announced by Mayor Nutter yesterday.

That agreement calls on the city and state to provide at least $90.5 million in tax subsidies to offset construction costs of PREIT and its partner, Macerich Co.

The city is expected to pay about $58 million for maintenance and upkeep for 43 years.

Luke Butler, chief of staff for Deputy Mayor Alan Greenberger, said the $58 million winds up saving the taxpayers about $100 million.

If the plan is approved, PREIT said, construction could start this summer and a new mall - the Fashion Outlets of Philadelphia - may open in two years. The redevelopment will cost $325 million.

Because PREIT has been buying up properties between 8th and 11th streets since 2003, Coradino said, those acquisitions already have cost $250 million.

For example, PREIT bought the old Kmart store in April 2013. Now it is looking at a total redevelopment cost of $575 million.

The Fashion Outlets mall is expected to have stores that sell high-end designer brands at lower costs. Coradino wants to have several restaurants, perhaps a movie theater and a place for bowling or bocce.

"We're in a go mode," Coradino said. "We've got the hammer in our hands. We're ready."

But the deal first needs the approval of the Philadelphia Redevelopment Authority, the School Reform Commission and City Council.

Both the PRA and the SRC are expected to vote on the agreement today.

The PRA must approve the real-estate aspects of the deal and the SRC must vote to declare the Gallery as a Tax Increment Financing district.

Council is expected to begin action next week.

Butler said yesterday that with TIF, PREIT would get to keep a share of new taxes generated after the mall's redevelopment.

For example, if the mall generates about $255 million in new tax revenues over the next 20 years, PREIT would keep $55 million to pay down its construction debt. The city and school district would get the remaining $200 million.

But in some cities, TIFs have come under criticism as favoring well-connected developers who get tax subsidies while competing businesses still have to pay all the taxes they owe.

The state has committed to a grant of $15.5 million, and PREIT has asked for an additional $20 million, Butler said.

Coradino said he's not worried about the city paying its share.

"We're not on bended knee trying to get money from the city like most property owners, calling for public financing," he said.

"We are more from a position for, 'Hey, let's work through this problem.' "

One problem, Coradino said, is that the city owes PREIT millions because of past and current contracts under which the city was supposed to pay PREIT to maintain and renovate the city's publicly owned areas.

Coradino said the city is obligated to make payments for the next 61 years. The new agreement cuts it down to 43 years.

"The city has an obligation to contribute to the redevelopment," Coradino said.

"We are saying to the city, 'You shouldn't be in the mall business. It's not what you do.' But they have an obligation. They owe us a great deal of money, maybe $200 million. . . .

"So we're saying to them, 'Get out of the business.' "

For years, the Redevelopment Authority owned the Gallery and leased it to PREIT. But under the new agreement, the city will turn over land to PREIT.

Brian Abernathy, PRA executive director, said issues of ownership are complicated after a series of agreements between the city and Gallery managers since Gallery I opened in 1977.

But he said there will be permanent public easements so commuters and shoppers will have access to SEPTA stations.

Abernathy said the city may not agree with PREIT on what it owes. But he said he would tell the PRA board today that PREIT plans to encourage minority businesses to return to the mall as owners of kiosks, carts and stores. There are also plans for minority food businesses and a youth-employment program.