PREIT loses control of Center City’s Fashion District mall to its California-based partner

The California-based co-owner of the Fashion District Philadelphia shopping mall will take control of the Center City property after making a big payment toward its mortgage debt, according to a regulatory filing.

Beginning on Jan. 1, Macerich Co., of Santa Monica, Calif., “will substantially control [the mall’s] operations and, subject to limited exceptions, control major decisions,” co-owner PREIT said in the filing on Wednesday.

PREIT also disclosed in the filing that chief executive Joseph F. Coradino and another official would get back the portions of their salaries that they had agreed to forgo as the company approached bankruptcy earlier this year.

The change in control at the Fashion District was tied to a renegotiation of $301 million in debt against the property held by Wells Fargo Bank and other lenders, which coincided with PREIT’s emergence from bankruptcy last week.

» READ MORE: Judge clears mall-owner PREIT’s restructuring plan with lenders, clearing path out of bankruptcy

Under the deal, affiliates of Macerich paid down $100 million of that debt in exchange for gaining control of PM Gallery LP, the PREIT-Macerich partnership that owns the Fashion District, according to the filing by Philadelphia-based Pennsylvania Real Estate Investment Trust, as PREIT is formally known.

“We are appreciative of our partners at Macerich, whose cooperation through this process has allowed us to finalize a mortgage for the Fashion District,” Coradino said in a statement to The Inquirer Thursday morning. “Macerich is now taking a lead role in day-to-day operations.”

The two companies will remain “50/50 partners” at the property, and PREIT’s on-site management team will be retained by Macerich, Coradino said. “The transition is expected to be seamless,” he said.

A Macerich representative did not respond to questions about the change.

PREIT is the biggest mall owner in Philadelphia and its surrounding counties, with properties that include the Cherry Hill Mall, Willow Grove Park, and Plymouth Meeting Mall, in addition to the Fashion District.

Macerich owns some of the nation’s highest-earning malls, including Tysons Corner Center in Northern Virginia. It partnered with PREIT at the former Gallery at Market East in 2014, when plans to redevelop the aged mall spanning Market Street between Eighth and 11th Streets were still being devised.

» READ MORE: PREIT in deal to sell Center City space, possibly for new Giant supermarket

The property reopened in September 2019 as the Fashion District, a project estimated to have cost up to $420 million, after three years of construction. The work was aided by $90 million public support through an incentive known as tax increment financing and grants from the city and state.

Tenants include mall stalwarts such as H&M and American Eagle; deep discounters like DSW and Burlington; entertainment venues including AMC Theatres and City Winery; coworking operator Industrious; and niche occupants that include Rec Philly, a shared-production-studio space, and Wonderspaces, a gallery for immersive art installations.

Coradino has said the mix aimed to draw in visitors who have increasingly been doing their shopping online, posing an existential threat to PREIT’s business and that of other mall owners.

But barely a half-year after it reopened, the Fashion District was shuttered for months to help stem the spread of the coronavirus, as were all of PREIT’s other malls and most of its competitors.

Layered atop its market-share losses to e-commerce sites, the coronavirus closures pushed PREIT into bankruptcy, where it won approval for a deal giving it some financial flexibility while it pursues a business overhaul that it has said will involve redeveloping some of its malls and selling parts of others.

The agreement, which enables PREIT to borrow up to an additional $130 million and relaxes its deadlines to repay almost $1 billion in existing debt, was separate from the one involving the Fashion District with Macerich.

During the bankruptcy proceedings, PREIT also disclosed that it was negotiating to sell a section of the historic Strawbridge’s department store building that is connected to the Fashion District, possibly for lease to grocery store, The Inquirer has reported.

In another section of its filing on Wednesday, PREIT said that the company’s executive compensation committee approved payments to Coradino and chief financial officer Mario C. Ventresca Jr. in the amounts by which their pay was reduced when they agreed to 25% cuts to their base salaries from July 27 to Sept. 30.

The cuts were announced in the summer, after The Inquirer reported that Coradino had not joined other corporate leaders in taking a pay reduction to save cash during the health crisis, even as his company furloughed employees and received $4.5 million in relief money from the government.

The company said at the time that the reductions were part of PREIT’s efforts to regain a solid financial footing and underscored “management’s commitment to acting in the best interest of PREIT’s stakeholders and becoming stronger.”

Coradino did not address the repayment in his statement Thursday.