PHILADELPHIA, PA—PREIT, the big owner of mall properties located here, is still bullish on the retail shopping experience in “bricks and mortar” stores, while it repositions space in many of its properties to align with new consumer expectations such as grocery stores, dining, entertainment, and other “experiential” retail tenants.
“I’d love to tell you that we make magic, but it’s really about the quality of the property and the quality of the location,” says Joseph F. Coradino, chairman and CEO of PREIT. In an exclusive interview with GlobeSt.com, Coradino says the real estate investment trust’s success in transforming its portfolio has a lot to do with its targeted effort to exit underperforming properties and reinvesting in profitable assets.
PREIT has faced significant challenges in many mall properties as department store chains have retrenched. The exit of Sears, JCPenney and Macy’s from many mall properties left PREIT with large anchor stores to fill.
“We got out in front of things, we sold off 16 lower quality malls, and we maintained a significant presence owning seven of the 19 malls in the Philadelphia market, four of the 19 malls in the DC market, and the result was, either through being proactive with Sears, or getting some Macy’s stores back, we have properties that are well-located in strong markets, and have met with a great deal of success in repurposing those boxes,” he says.
“We’ve grown our dining and entertainment since 2012 by 36 percent,” Coradino says. Total space devoted to the category is at about 19 percent, he says. “That number will grow in the relative near term to 25 percent. If we were having this conversation a decade ago, we’d be talking about food courts as the food offering and maybe one restaurant. Obviously today, with Dave & Buster’s and Lego Land, there are a lot more tenants to choose from, and more showing up every day. It’s hard to keep track of all the concepts that are out there.”
Listen to an extended audio interview with Coradino in the player below.
Two PREIT properties offer evidence that the strategy is working.
At Magnolia Mall in Florence, SC, the former department store space is fully leased. PREIT executed leases for the 28,500 square foot remainder portion of the former Sears location—Five Below and an off-price home furnishings and accessories retailer, both first-to-region retailers and leaders in the value category, to join Burlington Coat Factory in the former Sears box. The 20,000 square foot off-price home furnishings retailer and the 8,500-square foot Five Below will open in Spring 2018.
As the value retail segment continues to grow, these additions strengthen PREIT’s strategy to attract in-demand retailers and drive foot traffic at its properties. Also at Magnolia Mall, popular fast fashion retailer H&M will open a 20,000-square foot store in Fall 2017, illustrating PREIT’s continued commitment to diversifying its tenant base and bringing new-to-market options for its customers. Following this remerchandising initiative, Magnolia Mall occupancy is expected to exceed 99 percent.
At Capital City Mall in Harrisburg, PA, Fine Wine & Good Spirits will occupy 11,500 square feet and offer a premium collection of wine and spirits. The tenant will be adjacent to the new DICK’s Sporting Goods, which is currently under construction. Both will open this Fall. In 2018, the region’s only Dave & Buster’s will also open at the property, adding a sought-after casual dining and entertainment component.
Placing non-traditional tenants at PREIT malls is still done on a case-by-case basis, says Coradino. At Plymouth Meeting Mall in Plymouth Meeting, PA, about 20 miles northwest of Philadelphia, 45 percent of the space is dining and entertainment, he points out. “Conversely, at arguably our best mall, Cherry Hill (NJ), we’re less than five percent,” he says. “We’ll do some things to change that, by bringing in a sizable entertainment use, but we’re still not going to get anywhere near that. So it’s not a cookie-cutter approach.”
PREIT is looking at opening its second mall-based Whole Foods store (the first, a 60,000 square-foot space, is at Plymouth Meeting), and some other deals in fitness and value retailers, he says.
A new concept PREIT is bringing to Plymouth Meeting is called Five Wits, which provides multiple interactive multiplayer adventures for game participants in what Coradino describes as “a technological escape room on steroids.”
“We’ve got 450,000 college kids in the Philly area,” Coradino says. “A lot of them are going to go do that, you can rest assured.”
The way malls are leased up, Coradino says, has changed dramatically.
He recalled attending ICSC leasing conventions in Las Vegas where “you’d sit your leasing people in a room, and the retailers would come in and say, ‘I’ll take three stores, five stores, eight over there,’ and the people would come back from the conference and say, ‘I made 40 deals.’”
“This business is about looking at each and every property, carefully, thoughtfully, understanding the demographics, the psychographics, and looking for solutions that go way outside ‘the box,’” he says. “‘The box’ is not junior or apparel retailers, the box is dining, entertainment, off-price, fitness, a number of possibilities. The good news is location is still important. There’s very few property types that have better locations than malls.”
Clearly, though, Coradino doesn’t agree with observers who think mall-based retail will be taken over entirely by e-commerce.
“To say that our business is anything other than alive, well, and vibrant is almost silly,” he says. “Business is good.”