Pennsylvania Real Estate Investment Trust will relinquish much of its involvement in Fashion District Philadelphia beginning Jan. 1, leaving its partner in the project, Macerich Cos., to control the operations and make decisions involving the Philadelphia retail center, according to Securities and Exchange Commission documents filed by PREIT.
The arrangement arose as part of PREIT amending its loans and credit agreements through a Chapter 11 bankruptcy from which it exited last week and detailed in SEC documents.
As part of the new agreements, a $100 million payment was made and funded by Macerich on a $301 million loan backed by Fashion District Philadelphia. That payment reduced the outstanding principal on a Wells Fargo loan involving Fashion District to $201 million, according to SEC documents. The loan agreement was also modified to mature Jan. 22, 2023, with the potential of a one-year extension.
“In connection with the execution of the [Fashion District Philadelphia] loan agreement, the governing structure of PM Gallery LP was modified such that, beginning January 1, 2021, Macerich will substantially control the entity’s operations and, subject to limited exceptions, control major decisions,” PREIT said in SEC documents.
Santa Monica, California-based Macerich (NYSE: MAC) will take a lead role in all leasing, management, marketing, specialty leasing, legal and accounting efforts, according to PREIT. While the Macerich team will be leading the efforts, PREIT said it will continue to be present in decision-making and overall strategy for the property on an operating level as a 50/50 partner.
“We are appreciative of our partners at Macerich who have increased their investment in Fashion District Philadelphia, which has not only allowed us to finalize our credit agreement but also ensures that we will continue to operate Fashion District Philadelphia as 50/50 partners, with Macerich taking a lead role in day-to-day operations,” said Joseph Coradino, PREIT CEO, in a statement.
All employees will be retained by Macerich, PREIT said.
In other matters involving PREIT’s finances, the company amended credit agreements totaling just over $1 billion and borrowed $55 million. The company has pledged nine of its malls and three other properties to back the loans. PREIT owns regional malls including Willow Grove Mall, Cherry Hill Mall and Fashion District Philadelphia, which it redeveloped with Macerich.
The compensation committee of PREIT’s board also approved payments to reimburse Coradino and CFO Mario Ventresca Jr. for a 25% pay cut each took to their respective base salaries between July 27 and Sept. 30. Coradino has a base salary of $850,000 and Ventresca has a base salary of $450,000, according to the company’s most recent proxy statement.
PREIT (NYSE: PEI) has long been associated with what is now branded as Fashion District Philadelphia but had been known for decades as the Gallery.
PREIT and Macerich redeveloped the Gallery in a 50-50 joint venture that was initiated in 2014. The partnership received $90.5 million in tax payer handouts from the state and the city to support the redevelopment of the mall. Of that tax support, $55 million was in the form of tax increment financing, a controversial financing tool since TIFs are often put in areas where development would likely have happened without the financing.
The subsidies were approved based on estimates that a redeveloped Gallery would generate $194 million in new tax revenue over two decades, create jobs and boost overall economic growth in the city.
Fashion District Philadelphia opened in September 2019. The 1.1-million-square-foot urban mall has been struggling since the onset of the pandemic that initially shut down every mall and retail center in the state. The ongoing coronavirus pandemic then led some of Fashion District’s tenants to temporarily shutter operations. For example, City Winery, AMC Theater and Round One have remained closed and Century 21, a discount retailer, filed bankruptcy and vacated its store.
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