Mall owners in New York are coping with mass layoffs and rent delinquencies — even as they hope to reopen in the coming months — due to the coronavirus pandemic.
The state’s halt on non-essential businesses is speeding up the loss in value of regional malls throughout the Empire State, making food and retail sectors particularly affected by Gov. Andrew Cuomo’s executive orders.
Even before the governor’s executive order became effective on March 22, businesses like bars, restaurants and clothing stores drove unemployment insurance claims to grow by over 1,000% in the Hudson Valley and the Finger Lakes regions of New York.
Experts interviewed by USA Today Network New York say that given the existing turmoil in the retail and real estate industries, and the unpredictability of business fallout from the coronavirus crisis, trying to anticipate what comes next for malls in the wake of the pandemic is nearly impossible.
But they said it is not a pretty forecast.
The views from outside the malls now are striking: Vast empty parking lots without a car or person in sight.
They serve as a distinct reminder of the scope of the pandemic, shutting down bustling centers of activity in communities as they moved in recent years toward restaurants, clubs, arcades and nightlife and away from retail.
Finance analysts said the governor’s executive orders, known collectively as the New York State on PAUSE, became effective at a time when regional malls were already on the decline.
The current closure order runs through May 15, and malls may be one the last industries to reopen. Cuomo has cautioned against allowing any large gathering places for fear it could lead quickly to the virus’ spread.
“The big question everyone is asking is the reopening. When? How? Where?” Cuomo said Thursday.
“I said from day one on this situation, we have to be smart. We are at a place we have never been before. Emotions run high. Be smart, follow the numbers, follow data, talk to experts. Don’t get political.”
How malls will look to reopen in New York amid coronavirus?
According to Ted Potrikus, president of the Retail Council of New York State, mall owners and managers who find creative ways to help tenants hang on will likely be the ones to emerge from the ashes.
So far, a handful of malls across the country have said publicly that they’re requiring stores to continue paying rent on time. But some retailers like Abercrombie & Fitch and Urban Outfitters have stated they will not pay rent during the coronavirus pandemic.
Mall owners in New York said they are dealing with a delicate balance of addressing their own financial obligations to lenders, while ensuring their properties don’t lose too many tenants.
A mall that looks like it’s struggling, they said, could throw up a red flag for customers and cause shoppers to steer clear when they reopen.
“It’s all about perception. As the most forward-facing part of the economy, retail and shopping malls are going to be a very interesting intersection of economic recovery and social recovery,” Potrikus said.
As malls reopen, they have the space available to allow for socially distanced shopping, said Matt Hurlbutt, president of the Greater Rochester Enterprise, an economic development agency.
They also have time to observe how other businesses, such as grocery stores, created a safe environment for customers.
The passing of the Federal Advance Contract Enhancement Act is expected to unlock funds so small businesses like retailers and restaurants at regional malls can weather the pandemic.
But discretionary lending practices at banks may it uncertain how much will be available for the thousands of small businesses inside malls.
For Wilmorite, which owns three malls and a shopping plaza in the Greater Rochester area, tenants have inquired about delayed payments or rent relief, said Jon Dower, the company’s vice president of leasing.
Many tenants, though, have or will be receiving small business assistance from the federal government, he said. Management is discussing each situation with the tenants directly to determine the right course of action, Dower said.
The company also owns the Danbury Fair Mall in Connecticut and the Freehold Raceway Mall in New Jersey.
“Although our industry finds itself in a challenging time with the closures, we are looking forward to working with our tenants on a safe and thoughtful reopening when it is deemed appropriate to do so,” he said.
Regional trends for malls in New York
The owners of the largest retail centers in New York have seen e-commerce, innovation and financial ailments before the pandemic become accentuated in recent weeks.
Before the pandemic, real estate firms like Pyramid Management Group, the owner of Destiny USA in Syracuse, Crossgates Commons in Albany and the Palisades Center in West Nyack, had seen anchor stores like J.C. Penney and Sears vacate their properties as the retailers themselves lost out to e-commerce.
But the inability to do business while the governor’s executive orders remain in effect meant that Pyramid itself is unable to pay down its outstanding debts.
According to real estate analysts from finance firm Trepp, six of Pyramid Management’s outstanding mortgages — including the mortgages for Destiny, Crossgates, the Palisades Center and the Walden Galleria in Cheektowaga – have been moved to special servicing on grounds of delinquent debt.
That means a third-party company will handle the Syracuse-based Pyramid’s payments and dealings with borrowers.
The Oakdale Mall in Johnson City, near Binghamton, found itself in a similar situation after several major tenants left within two years, causing the mall owners to miss mortgage payments and start foreclosure proceedings in 2019.
Pyramid did not return calls seeking comment, nor did several other large mall chains in New York.
Malls were already undergoing a transformation.
Syracuse’s Destiny USA, the largest mall in the state, houses entertainment venues and restaurants, as does Crossgates, which recently underwent upgrades at its movie theaters and added a hotel and spa.
What was Destiny recently used for? A giveaway of 5,000 gallons of milk unused by farmers.
When malls reopen, the ongoing move away from retail “would be the thing that helps them weather the storm,” Potrikus said.
An existing track record of drawing new tenants to replace the old helps too.
But previous success isn’t necessarily a determinant of a mall’s need for financial relief during the coronavirus crisis, said David Putro, senior vice president of DBRS Morningstar, a global credit rating agency.
Not only are malls having to keep up on mortgage payments, but other loans are maturing and coming due.
For Pyramid, $455 million in loans are due on seven properties in New York and Massachusetts between this year and next, according to Morningstar’s analysis.
When the malls reopen, will shoppers come?
There’s another large unknown: Will customers return to movie theaters or entertainment venues at the malls even after business closures are lifted?
Malls could bring in more unusual tenants in the coming years, from medical facilities to car dealerships, said Steve Jellinek, vice president of research at Morningstar.
And it is certain social distancing measures will still be in place at most businesses after a reopening begins.
“There is some pent-up demand to get back out and engage — my hope is there’s an interest in getting back to normal,” Hurlbutt said.
For Wilmorite, the customer experience will be at the forefront whenever the state approves a business reopening strategy, Dower said.
“You can rest assured that we will have a clean, comfortable and safe place for employees and shoppers alike to return to,” Dower said.
The pandemic, though, has put malls in a tenuous position.
Simon Property Group — the largest mall owner in the country and based in Indianapolis — has a huge footprint across New York.
It owns The Westchester in White Plains; the Shops at Nanuet in Clarkstown and sprawling Woodbury Commons outlet mall in Orange County.
The shutdowns across the nation has cut Simon’s stock value in half from $140 per share in late-February to $67 at the end of April.
The company, which did not return requests for comment, was reported to have furloughed one third of its staff during the pandemic and plans to open 49 malls throughout the country starting this month..
In New York, it will be up to state officials to decide when Simon could reopen.
By the numbers: How New York retail is faring
Comptroller Thomas DiNapoli has stated tax revenue for the fiscal year that started April 1 in New York may be $4 billion to $7 billion lower than the $87.9 billion projected in January.
The state Department of Labor said workers in the accommodations, food services, and retail trade industries have been the leaders in unemployment insurance claims during the pandemic.
- From March 8 to April 18, initial unemployment insurance claims in New York increased by 1,737% to 1.3 million, the labor department said.
- Long Island has seen the highest year-over-year percent change in initial unemployment insurance, while over 50% of total initial unemployment insurance claims were in New York City.
- Business analysts estimate discretionary spending has declined by as much as 90% in some sectors since coronavirus has hit the U.S.
Manhattan-based consumer analytics firm 1010data says that based on credit card transaction data, the apparel, beauty and accessories retail sectors all declined in average weekly sales from March through mid-April as compared to January and February
The company, though, said grocery and office supplies average weekly sales increased over 65% since early March compared to the first two months of the year.
But other stores haven’t fared as well.
According to research firm Coresight Research, a total of 2,184 store closures have been announced in 2020, keeping in pace with national store closing estimates for the last three years – 9,000 for 2019, 5,700 for 2018 and 8,069 for 2017.
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