I made one of my regular pilgrimages to the King Of Prussia mall for purposes of observation. I can say without any doubt the floor traffic was the slowest I've ever seen considering it was a Saturday just before Xmas. The lot was what you would typically see on a weekend in February and only about 1/4 -1/3 of the crowd had bags in their hands. Many stores had nobody in them. It wasn't long ago when you couldn't walk through that mall on an equivalent night. This is a mall that was seeing sales of over $500 per sq ft.
Being in business myself, I truly felt sorry for some of those independent retailers. I know they're paying exorbitant lease
rates.
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Wednesday, August 27, 2008
KofP Mall and the real estate bust
What is King of Prussia Mall worth? Analysts ballparked the giant shopping center at roughly $1 billion -- nearly a year's sales for Macy's and the other department stores and retail shops that crowd the complex -- when half-owner Lend Lease put its investment up for sale yesterday.
Last June, half-owner Lend Lease estimated the value of its 50% stake (bought for $110 million in 1996) at $410 million. But property markets have tanked since then. Is it worth much less today?
Maybe not, says Joseph Pasquarella, managing director of Integra Realty Resources-Philadelphia, an adviser to mall investors and the banks that finance them. Nationally, "pricing has come down modestly," but values for super-sized malls like King of Prussia "aren't affected by general conditions."
Suburban Philadelphia store-vacancy rates and rents have stable, he says. Local mall stores rent for as low as $10 a square foot for long-term deals on big department stores that investors are eager to land, up to $100 and more for lucrative boutique locations, by Pasquarella's count.
Prices could weaken if Boscov's closes more than just the local North Wales and Montgomeryville stores in its reorganization, or if other chains copy Starbuck's and close multiple locations. "But I'm optimistic," he adds. "In Philadelphia, the job market's still good."
Appears SPG shares the management contract.
Should be lots of vacancies with 147k sq ft up for renewal in 2009
64.233.169.132
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Lend Lease Falls After Scrapping King of Prussia Sale (Update2)
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By Shani Raja and Jason Scott
Nov. 13 (Bloomberg) -- Lend Lease Corp. shares slumped 9 percent in Sydney trading after Australia's largest developer scrapped plans to sell its half of the King of Prussia shopping center, the third-largest mall in the U.S.
Assets won't be sold at low values because Lend Lease is not a ``forced seller,'', the Sydney-based company said today in a statement. Lend Lease shares fell by the most in a month. The King of Prussia stake was worth $400 million at June 30, according to Lend Lease's 2008 earnings report.
Owners of U.S. shopping centers face a drop in retail spending as unemployment rises, real estate values fall and the economy weakens. General Growth Properties Inc., the second- largest U.S. mall owner, may seek bankruptcy protection. Lend Lease, which is struggling to fund the 1 billion pound ($1.5 billion) construction of London's Olympic Village, reaffirmed today that fiscal 2009 profit may fall as much as 15 percent.
``Conditions in the economy have worsened markedly,'' said Sam Chandan, chief economist of Reis Inc., a New York real estate research firm, in his quarterly report today forecasting rising vacancies in the commercial real estate market. ```Consumer activity will remain stagnant.''
Lend Lease shares fell 70 cents to A$7.10 at the close in Sydney, the biggest one-day slide since Oct. 10. The benchmark index declined 5.9 percent. Lend Lease has dropped 59 percent this year, cutting its market value to A$2.8 billion ($1.8 billion).
Asset Sale Dependent
``The market reacted because it's sunk home that 25 percent of Lend Lease's guidance is dependant on asset sales,'' said Brent Mitchell, an analyst in Melbourne at Shaw Stockbroking Ltd.
The King of Prussia Mall, located off Route 202 in the state of Pennsylvania, was the third-biggest U.S. mall by square footage as of 2006, exceeded only by South Coast Plaza in Costa Mesa, California, and Bloomington, Minnesota's Mall of America, according to the International Council of Shopping Centers.
The mall's tenants include Macy's Inc., the second-biggest U.S. department store chain, which today said it's ``less confident'' about next year's earnings amid the economic slowdown. Macy's, based in Cincinnati, Ohio, said it's delaying store openings and canceling other projects to save cash.
Bloomingdale's, Nordstrom, Neiman Marcus, Lord & Taylor, Sears and JCPenny are among the tenants at King of Prussia, according to the center's Web site. The mall, which opened in 1963, is managed by Kravco Simon Co.
`Bargain-Basement'
``Buyers are in no rush,'' said Winston Sammut, who oversees the equivalent of about $49 million at Maxim Asset Management Ltd. in Sydney. ``They're either non-existent or they're looking for bargain-basement prices.''
Lend Lease, which had cash reserves of more than A$800 million as of Oct. 31, said it remains in a strong financial position. The developer will take a A$272 million writedown on its business in the U.K.
``Unprecedented financial market conditions make it prudent to take pro-active steps to adjust our balance sheet and investment outlook so we are in a good position to explore opportunities as markets recover,'' Chief Executive Officer Greg Clarke said in today's statement.
U.S. unemployment rose to a 14-year high of 6.5 percent in October, the Labor Department said Nov. 7. Service industries, which include retailers, shed 108,000 jobs last month, according to the government agency.
U.S. Retail Sales
The vacancy rate at U.S. regional and superregional malls rose to 6.6 percent in the third quarter, the highest since the quarter after the September 2001 terrorist attacks, from 5.8 percent at the end of 2007, according to Reis.
At neighborhood and community shopping centers, the national vacancy rate will rise to 9.9 percent by the end of 2009 and worsen to 10.3 percent in 2010, from 9.1 percent at the end of 2008, Reis's Chandan said. He didn't forecast vacancies for regional malls today.
U.S. retail sales fell 1 percent for the week ending Nov. 8, according to the ICSC-Goldman Sachs Group Inc. retail sales report.
Same store sales are considered the best measure of a retailer's results because they exclude the effect of store openings and closings in the past year.
Other real estate-related stocks also plunged following Lend Lease's statement. Goodman Group, Australia's biggest industrial real estate investment trust, fell 20 percent to 99.5 Australian cents. Goodman said on Oct. 28 it's seeking A$1.5 billion through the sale of shares and assets.
To contact the reporter on this story: Shani Raja in Sydney at sraja4@bloomberg.net; Jason Scott in Perth at Jscott14@bloomberg.net.
Last Updated: November 13, 2008 00:40 EST |
