The Discussion: Navigating the Evolution of Malls: A Conversation with Joseph Coradino, CEO of Pennsylvania Real Estate Investment Trust
In a recent episode of “America’s Commercial Real Estate Show,” host Michael sat down with Joseph Coradino, the CEO of Pennsylvania Real Estate Investment Trust (PREIT), to discuss the state of malls in the current real estate landscape. Coradino provided insights into the performance of malls during and post-COVID, trends in big-box retailers, alternative uses for mall spaces, and the challenges and opportunities in the evolving retail sector.
The Impact of COVID on Malls:
At the onset of the conversation, Coradino acknowledged the challenges faced by the retail sector during the COVID crisis. Malls, like many other industries, experienced a shutdown for four months, leading to a tough period for businesses. However, post-COVID, there has been a notable rebound, with malls witnessing pent-up demand and strong performance indicators.
Strategic Retail Property Portfolio Management:
PREIT adopted a proactive approach to navigate through the challenges, strategically selling off about half of its malls over the past decade. Coradino highlighted the importance of retaining quality assets, resulting in the company’s positive post-pandemic performance. Current occupancy rates stand at around 94%, and sales per square foot are at record levels.
Adapting to Changing Retail Trends:
The conversation delved into the transformation of malls, particularly in terms of big-box retailers. Coradino shared how PREIT replaced traditional department stores with a diverse range of tenants, including Burlington Coat, Dick’s Sporting Goods, Aldi, and others. The shift was aimed at driving both rents and traffic, contributing to the overall success of the portfolio.
Survival of the Fittest in Retail:
Discussing the evolution of big-box retailers, Coradino emphasized the survival of the fittest. The retail landscape has seen a shift towards performers, with department stores, athletic shoes, women’s apparel, experiential offerings, and restaurants displaying resilience. The changing mix includes international retailers like Primark entering the market, signaling a positive trend.
Alternative Uses for Malls:
As malls evolve, Coradino shed light on the alternative uses being explored by PREIT. The company is venturing into mixed-use development, incorporating apartments, hotels, medical facilities, and life sciences tenants into mall spaces. This strategy not only enhances the balance sheet but also generates additional traffic and interest.
Zoning Challenges and Entitlements:
Addressing zoning and entitlement challenges, Coradino acknowledged the variations across municipalities. While some communities may resist changes, the presentation of well-thought-out master plans, considering pedestrians and accessibility, has generally been well-received. The CEO discussed the recent shift back to in-person meetings for entitlements after navigating virtual processes during COVID.
Adapting to Zoning Changes:
Reflecting on the changes in the entitlements process, Coradino noted that virtual meetings, while efficient, elongated the process. With the return to in-person meetings, he anticipates improved efficiency. Despite challenges, the company has successfully pursued entitlements and rezonings throughout the pandemic.
Diversification of Mall Properties into Self-Storage and Industrial Uses:
The conversation touched on the diversification of mall properties, including self-storage. Coradino shared the success of a self-storage venture at one of their properties, utilizing an abandoned lower level. He also discussed the challenges and opportunities associated with introducing industrial uses to mall properties.
Merging Retailers and Tenant Trends:
Coradino highlighted emerging retailers like Primark, Warby Parker, BoxLunch, and digitally native brands entering mall spaces. The influx of new tenants has contributed to PREIT’s impressive occupancy rates. Despite macroeconomic concerns, particularly regarding inflation, the CEO remains optimistic about the performance of dining and entertainment tenants.
Sales Numbers and Economic Concerns:
In addressing potential economic challenges, Coradino provided insights into tenant sales numbers. Despite concerns about inflation and the potential for a recession, dining establishments across the portfolio have shown positive performance, signaling continued consumer activity.
Future Outlook and Closing Thoughts:
Coradino concluded the interview by encouraging people to embrace shopping and challenging the negative perception surrounding malls. He emphasized the dichotomy of the mall industry, where successful malls thrive while others face closures. Coradino expressed confidence in the sector’s ability to adapt and thrive, especially with the introduction of new retailers and alternative uses.
In conclusion, the conversation with Joseph Coradino provided a comprehensive overview of the current state of malls, shedding light on strategic portfolio management, adapting to retail trends, exploring alternative uses, overcoming zoning challenges, and the future outlook for the commercial real estate sector.
Joseph Coradino with PREIT (Pennsylvania Real Estate Investment Trust), a large owner of U.S. malls, discusses the state of malls with show host Michael Bull. Discussions include performance, occupancy, emerging tenants, and the future of American Malls.