Syracuse, N.Y. -- The closing of yet another large store at Destiny USA couldn’t have come at a worse time for the giant Syracuse mall, and now we know just how much the loss of At Home will cost the retail center.
In a credit opinion issued earlier this month, Moody’s Investor Service said it expects a small group of tenants to open at Destiny in 2024. However, it said they are “not collectively large enough to replace the lost leased square footage from At Home’s closure.”
The ratings agency said the closing of the At Home store will cost the mall nearly $1 million a year in lost rent.
The news of the loss of At Home comes just weeks before Destiny faces an annual deadline to extend or pay in full more than $450 million in mortgage loans.
Destiny is drowning in debt. The mortgage loans are part of a total debt of more than $700 million on the mall, which was appraised last year at just $133 million.
If Pyramid Management Group, the mall’s owner, cannot work out an extension of the mortgage loans, lenders could force the mall’s sale. That’s unlikely to happen, though, given the mall’s shrinking market value and occupancy rates amid the growth of online retailing.
Instead of paying off the mortgages, Pyramid has been successful in getting extensions on the loans, though with strings attached.
This year’s financial target for obtaining another one-year extension is having a 12-month net operating income of at least $19 million by June 6. Moody’s said Destiny is unlikely to meet the threshold from operations alone.
Pyramid did not respond to a request for comment.
At Home’s lease expires on Sept. 30, and the store confirmed to syracuse.com | The Post-Standard that it will not be renewing it. Corporate officials said the home decor superstore, which has occupied an 88,000-square-foot space on the mall’s first floor since 2016, will close Aug. 1.
At Home has not given a reason for the closing. But Moody’s noted its decision continues a trend of medium and large anchor tenants closing at the mall.
Forever 21 left at the end of March. Rue21, a national clothing retail chain, announced late last month that it will be closing all its stores, including the one at Destiny, after filing for Chapter 11 bankruptcy.
JCPenney and Lord & Taylor closed their stores at Destiny in 2020 after filing for bankruptcy, and Best Buy closed in April 2021 after opting not to renew its lease.
Destiny has managed to keep most of its in-line storefronts filled with tenants and has responded to the growth of online retailing by offering more live entertainment and in-person activities in addition that opened in 2012.
But a large portion of its anchor spaces remain vacant, creating dead zones within Destiny, the largest mall in New York and one of the largest in the U.S.
The loss of large anchor tenants is more significant to malls than losing a few smaller in-line tenants because big stores are the largest drivers of foot traffic, and their loss has caused a decline in Destiny’s broader market position, Moody’s said.
Destiny USA in Syracuse is one of the largest malls in the U.S., but it is beset with large vacancies in its anchor spaces. (Rick Moriarty | rmoriarty@syracuse.com)Rick Moriarty | rmoriarty@syracuse.com
Replacing big tenants is also harder for malls than filling spaces left by small retailers, as online shopping continues to eat away at brick-and-mortar retailers.
Anchor spaces at malls have traditionally been filled by department stores, but they have become the dinosaurs of the retail industry. Destiny has just one left, Macy’s, a chain that has closed 300 stores since 2015 and plans to shutter 150 more over the next few years.
While Destiny is “always in some form of negotiations with new or existing tenants for new leases or lease extensions, the ability to sign up a medium to large size new anchor tenant remains difficult,” said Moody’s.
The loss of At Home comes at an especially bad time for the mall.
Destiny is highly leveraged, with debt totaling $713.5 million. That’s five times greater than what the mall is worth, according to the appraisal done last year.
The debt consists of $453.8 million in mortgage loans and a $259.7 million balance on bonds issued by the Syracuse Industrial Development Agency to finance the 2012 expansion.
Destiny has been making its bond payments. But Pyramid has been struggling to make its mortgage payments. Those loans were originally obtained from JP Morgan Chase and later bundled into commercial mortgage-backed securities sold on Wall Street.
Pyramid, the family-owned mall development company that owns the mall, has been making only interest payments on the loans. They were supposed to be paid in full in 2019. But Pyramid was unable to pay them off or refinance them.
Under a forbearance agreement with special servicer Wells Fargo, Pyramid must meet certain financial targets each year to obtain one-year extensions on the mortgages. Special servicers are banks that handle loans in danger of going into default.
In addition, Pyramid only pays 1% of the loans’ 3.8% interest rate as cash, with the remaining interest deferred and added to the loans’ balance each year. As a result, the principal on the loans goes up instead of down each year.
That leaves the June 6 deadline to negotiate for another extension on the loan payments.
Destiny’s owners could obtain the extension by putting up more of their own money to pay down a portion of the mortgages if they cannot persuade the loan servicer to modify the target, according to Moody’s.
Destiny USA in Syracuse is one of the largest malls in the U.S., but it is beset with large vacancies in its anchor spaces. (Rick Moriarty | rmoriarty@syracuse.com)Rick Moriarty | rmoriarty@syracuse.com
They also could refinance the loans with another lender. However, Moody’s said the company’s ability to obtain a replacement loan on similar terms is “highly unlikely” given the recent rise in interest rates and the mall’s low valuation.
If Pyramid defaults on the loans, Destiny could be handed over to a receiver who would have the option to sell the mall, Moody’s said. In such a scenario, the mall would be taken over by a new owner but would more than likely remain open.
There is a strong reason why the mall’s lenders would not want want to force its sale.
Moody’s said an appraisal conducted in July 2023 valued the mall at $133 million (with the original “Carousel” portion worth $64 million and the newer portion valued at $69 million). That’s $70 million, or 34%, less than the $203 million valuation it received in 2021.
More importantly, it means the total debt on the mall -- $713.5 million -- is five times greater than the mall’s worth.
With the mall valued at just $133 million, lenders would certainly not get all their money back if Destiny is sold.
More likely, the mall’s creditors would get on average just 18 cents on the dollar, and that’s assuming Destiny’s value has not fallen since the appraisal was done last year. But in the case of the holders of the $453.8 million in mortgage loans, they would likely get none of their money back, since those loans are subordinate to the $259.7 million Pyramid owes on its bonds.
The bonds are higher in the financial pecking order because they are treated as property taxes under a complicated 30-year payment-in-lieu-of-tax agreement between the city and Robert Congel, the late Pyramid founder who built the mall and whose family now owns it. (Pyramid is now led by Congel’s son Stephen.)
The unique agreement allows Pyramid to use money that would otherwise go toward property taxes to instead make its bond payments. The deal effectively made the mall exempt from most property taxes for 30 years. It is set to end in 2036, when the bonds mature.
The bond payments are back-loaded and increase 4% a year before peaking at $36 million in 2035.
DESTINY USA DEBT PROBLEMS
- Destiny USA gets 5-year extension on $430M in loans
- How it could end for Destiny USA: Some unpleasant ways out for the struggling mall (Part 2)
- Destiny USA, Syracuse’s mammoth mall, faces a crisis of debt and uncertainty (Part 1)
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