Simon Property To Relinquish Philadelphia Mills Mall To Lenders
America's largest mall owner plans to hand over the keys to one of its signature Philadelphia locations, giving up on finding ways to pay off the $290M in securitized debt tied to the property.
Simon Property Group plans to relinquish ownership of the 1.7M SF Philadelphia Mills outlet mall to the holders of its CMBS debt, according to servicer commentary. The debt is divided into four primary notes that had been set to mature last month, CoStar first reported.
The mall, located just west of Interstate 95 in northeast Philadelphia off Woodhaven Road, has had its debt maturity extended at least twice, Jonathan Ramel, vice president at Morningstar Credit, told Bisnow.
Cash flow and vacancy issues have beset the mall for years, which fell into receivership in 2012 after occupancy dipped down below 82%. Greenwich Capital first originated the loan for the property in 2007.
In addition to cash flow and vacancy issues that have beset the mall for years, two anchor tenant leases are set to expire this year, Ramel said. Burlington's lease, which spans 129K SF, will expire by August. AMC Theatres' 68K SF deal will expire by the end of the year. By 2026, Marshalls, a 70K SF anchor tenant, will have a lease expiration as well.
“That is going to have a residual effect if those leases aren't renewed or extended,” Ramel said. “I covered this in 2007, and this mall, when it went through its first iteration and it lost some big tenants, it was able to recover. But in this time and day, it might be much more challenging.”
Once the keys are handed over and another appraisal is set, the new deed holder will have to decide on whether to try to help the mall recover or sell it altogether, Ramel said.
The $290M debt was split from two A notes into the current $120M A1 note as well as a $80M A2 note, a $54M B1 note and a $36M B2 note.
The notes’ due date for repayment was extended in 2019 and again in 2020 amid the pandemic, which shut down malls across the nation.
Philadelphia Mills was appraised at $370M in April 2007 after Simon took ownership of the mall via its acquisition of Mills Corp. But this year, the city assessed the property’s value at $101M.
Last year, Philadelphia Mills brought in $19.5M in revenue, a 15% drop from nearly $23M in 2022, the Philadelphia Business Journal reported.
Simon has consistently made interest payments on the A notes through June and owed a $259M balance on the Philadelphia Mills property, per the PBJ.
The company left Philadelphia Mills out of its annual report to shareholders in February.
Simon representatives didn't respond to requests for comment.
Ramel said that despite retail's overall recovery as an asset class, malls that aren't considered in the upper echelon are still at risk of falling into distress.
“It’s come to a time where tier-two and tier-three malls recover and then fall back down,” Ramel said. “Simon owns King of Prussia mall, which is one of the top malls in the country, and they're just going to look at this and say that this mall is not a core asset anymore.”
