The retail landscape has always been a regularly evolving space, but recent years have shown that retail as we know it will be changed for good. It seems that days of getting up and going to the store in person might soon be a thing of the past if the e-commerce landscape continues to grow at the rapid rates that it currently is. Rumors of a ‘retail apocalypse’ have been floating around for at least the last decade and lately it seems to be holding true.
Shopping malls were the first to take a hit. Between rising inflation and tricky job markets, consumers are no longer able to shop at the specialized stores homed in malls as often as they used to and Destiny USA, the largest mall in New York, may soon close its doors if it does not get approval for a mortgage extension.
Mall developer in big trouble
Destiny USA was developed by Pyramid Management Group and the developer who once brought New York its biggest mall, is now struggling. Pyramid — the rebuilder of Franklin Square in Syracuse — has had a tough year resulting in the loss of two of its malls and the future of its remaining malls is not looking too bright either.
As a result of lenders foreclosing on two of Pyramid’s properties, the Hampshire Mall in Hadley, Massachusetts closed last summer. This was followed by the Palisades Center in West Nyack, New York closing in September.
The remaining three-fourths of Pyramids eight malls are not faring too well either. All six of these malls are on the hook for ballooning mortgages that need to be refinanced or paid off in full within a few years. The main cause of concern now is that the value of these malls are falling far below the value of its debt. As such, Pyramid might not be able to secure new financing before the loan maturity dates are up.
The company is negotiating loan extensions to aid this issue and it has found some success with this. Destiny USA’s mortgage loans of $430 million, however, have not yet been successfully extended.
What is the fate of Destiny USA?
Last summer, Pyramid was told by a special service who oversees loans that it needed to make a $38.9 million payment in order to gain another year-long extension on its mortgages. The company revealed that it was unable to make the payment and was subsequently threatened with “enforcement action” by the service provider who had also terminated the forbearance agreement.
Enforcement action is just another phrase for foreclosure, meaning the lenders would gain ownership of the property. Pyramid was in talks with the special servicer with the hopes of modifying their loans. This occurred last August and not much details have been shared regarding it.
After a 2012 expansion of the mall, Pyramid also has additional debt in the form of $260 million on bonds issued by the Syracuse Industrial Development Agency — bringing the company’s total debt up to almost $700 million.
The recent tax assessment by the city of Syracuse on Destiny was reduced by a massive 73%, dropping it from $834.7 million to $224.3 million. City Assessment Commissioner Matthew Oja shared that this ” shouldn’t have any net effect on payment or any financial arrangements on the mall,” since Destiny has a 30-year property tax exemption in effect since 2007.
The mall’s current value is way under the $700 million value of its debt and this decrease in value is, in part, owed to the increasing number of vacancies in the mall.
“The vacancies, I think, have eliminated a lot of value,” Oja shared. “There’s so much space that can’t be monetized that they’re paying to heat and secure even though it’s empty.”
Pyramid is attempting to combat this issue by breaking ground on a 40,000-square-foot indoor pickleball facility, as well as a 14,000-square-foot virtual reality concept in Spring. The road ahead will still be a tough one for Destiny USA and Pyramid, however.