Mall owner Pyramid is trying to hold out with the swirling debt storm

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(Bloomberg) – The pandemic hit few shopping center operators harder than Pyramid Management Group, a family-run owner of 14 U.S. malls worth $ 4 billion, before the lockdown weighed on property values.

Revaluations – sparked last year amid the company’s rising mortgage defaults – dropped ratings in eight Pyramid malls by an average of 59%, making those centers worth less than their debt.

Shoppers walk through the Destiny USA mall in Syracuse, New York, USA on Friday, July 10, 2020. The mall reopened on Friday after it closed for nearly four months during the Covid-19 pandemic, according to Onondaga County’s executive Ryan McMahon.

Despite this burden, Chairman Stephen J. Congel is optimistic that his company can weather the crisis that has led other shopping center owners to file applications bankruptcy.

“I’m paying a $ 50 bounty for someone who can find a word more dramatic than ‘apocalyptic’,” Congel said in an interview. “We don’t think this is the long-term prediction for the industry’s viability.”

Long before the pandemic, shopping malls lost market share to e-commerce and discounters. According to Floris van Dijkum, an analyst at Compass Point Research & Trading, likely only about half of the country’s 1,100 closed regional centers will survive as tenants withhold rents and shutter stores.

According to Moody’s Investor Service, the crime rate for commercial mortgage-backed securities in regional shopping centers was 22.9% in February, the highest of any property category. Even the strongest landlords – Simon Property Group Inc. and Brookfield Asset Management Inc. – have talked about ditching some of their malls instead of throwing good money at bad.

For Pyramid, many of its malls benefit from being “the only game in town” in their New York and Massachusetts markets, but the company may not have the financial stamina to deal with ongoing problems for tenants, said Gwen Roush, Analyst at valuation service DBRS Morningstar.

“A large anchor vacancy or extended period of low foot traffic and the possible need for longer rental offsets for tenants is a bigger hill to them than a Brookfield or Simon,” Roush said in an email.

The hardest hit was among Pyramid’s properties Destiny USA, New York’s largest mall, in Syracuse, where the company is headquartered. The center was valued at just $ 203 million after a 71% reduction in rating last year and has CMBS debt of $ 430 million. In addition, this month Moody’s downgraded $ 285 million in municipal bonds to junk, citing the mall’s “rapid decline in occupancy.”

Shoppers walk through the Destiny USA mall in Syracuse, New York, USA on Friday, July 10, 2020. The mall reopened on Friday after it closed for nearly four months during the Covid-19 pandemic, according to Onondaga County’s executive Ryan McMahon.

pyramid Palisade center In West Nyack, New York, the value was reduced from $ 881 million last year to $ 425 million in 2016. The Poughkeepsie GalleriaThe estimated value decreased 71% to $ 68.6 million.

While he’s not ready to part with real estate just yet, Congel cannot guarantee that Pyramid – the company founded by his father in the 1970s – will be able to keep it all. He’s heard of vulture investors sniffing for distressed real estate bargains.

“They always circle where they smell rotting meat,” he said. “This is her genetic make-up.”

But its lenders have been patient because there are few benefits to reclaiming its properties. They extended the due date of Destiny debt to June 2022 and granted loan changes at other malls to allow more time to set up new funding.

“Lenders – whether CMBS or balance sheet lenders – know that continuing to work with us will provide the highest return and recovery for bondholders and debtors,” he said.

Congel also sees a nascent turnaround as Covid-19 Vaccine use allows its malls to repopulate. Pedestrian traffic has returned to around 80% of its pre-pandemic level despite ongoing seating restrictions in movie theaters and food courts and the border closure keeping Canadian shoppers away from Pyramid, New York state’s malls.

In the longer term, he finds new tenants to replace closed department stores. Home Depot Inc., Target Corp. and even an Amazon.com Inc. supermarket rent out large blocks of space. Burlington Stores Inc., Best Buy Co., and Dick’s Sporting Goods Inc. have “opened stores like crazy,” said Congel.

Pyramid is Adding apartments and hotels in some hotels to diversify revenue. But Congel plans to keep retail as the main reason for visiting its malls.

“People still like to go out and eat and shop,” he said. “You cannot repeat this physical experience.”

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