PREIT gets a partner for Gallery makeover

The Gallery is "well-positioned between the Convention Center traffic, tourists from Independence Mall and the Liberty Bell, the affluent Washington Square area, and Jefferson," a retail source said. MATTHEW HALL / Staff
The Gallery is "well-positioned between the Convention Center traffic, tourists from Independence Mall and the Liberty Bell, the affluent Washington Square area, and Jefferson," a retail source said. MATTHEW HALL / Staff
Posted: August 01, 2014

Ever since discount designer-apparel department store Century 21 signed on in April as an anchor tenant in the Gallery at Market East, retail analysts have speculated what else might move in. Among the names dropped: "fast fashion" brands such as Uniqlo and Forever 21. Maybe a high-end movie theater.

Now that Gallery owner Pennsylvania Real Estate Investment Trust (PREIT) has struck a partnership with retail developer Macerich Co. - a joint venture to redevelop the struggling Center City shopping mall - industry observers have a better clue.

The renovation likely will cost at least $200 million, analysts said. Santa Monica, Calif.-based Macerich, whose properties nationwide include Deptford Mall, has agreed to invest $106.8 million in the Gallery, the companies announced Tuesday.

"The partnership makes a lot of sense," Douglas J. Green, a principal with retail consultancy MSC in Philadelphia, said Wednesday. "Macerich and PREIT have similar tenants, but PREIT brought in Macerich because they have downtown, urban mall developments" such as Kings Plaza in Brooklyn and Cross County Shopping Center in Yonkers, N.Y. "PREIT doesn't, they have expertise in suburban malls."

PREIT owns 10 enclosed malls in the Philadelphia area, including Cherry Hill, Moorestown and Willow Grove Park.

Potential new Gallery tenants would likely include "affordable luxury" brands in shoes and apparel, as well as food and entertainment companies to which Macerich leases space elsewhere, Green said.

At Kings Plaza in Brooklyn, for example, Macerich tenants include A|X Armani Exchange and Michael Kors, as well as Chipotle and Panera Bread. In Yonkers, its tenants include Gap, Applebee's, Steve Madden, and Zara.

New Gallery stores would have to offer "aspirational purchase if you're middle income, or something you buy frequently if you're an affluent shopper," Green said, noting that the mall "is incredibly well-positioned between the Convention Center traffic, tourists from Independence Mall and the Liberty Bell, the affluent Washington Square area, and Jefferson."

"It's a melting pot, and you have to have the right mix of tenants," he said.

Rents are another ingredient.

Uniqlo, for instance, has said it will watch sales at its 16th and Walnut Streets store, due to open in the fall. Depending on performance there, Uniqlo may open another east of Broad Street, downtown brokers said.

Current rents at the Gallery vary, brokers said, in part because the stores are so different in size. Rents range now from $30 to $70 per square foot.

Other major retail developments are planned for the blocks east of City Hall near the Gallery, many of them part of mixed-use projects.

Along Chestnut Street between 11th and 12th, where his client Brickstone Cos. is renovating for August 2015 completion 300,000 square feet of retail and restaurant space, Larry Steinberg, senior vice president of retail services at CBRE in Center City, said rents per square foot currently are $40 to $50.

That compares to $60 to $70 per square foot west of Broad Street on Chestnut, and $130 to $200 per square foot west of Broad on Walnut Street, said Steinberg. Negotiations with tenants for Brickstone's project are underway, he said.

Paige Jaffe, retail broker at McDevitt Co. in Philadelphia, said she has seen healthy tenant interest in client National Real Estate Advisors' East Market project. The residential/retail/ hotel complex along Market, Ludlow and Chestnut Streets between 11th and 12th is set for completion in 2016. She declined to disclose prospective rental rates for retailers.

"If the [Gallery] developers get the right names to move in," Steinberg said, "it could be very exciting."


earvedlund@phillynews.com

215-854-2808

@erinarvedlund

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