Gallery redevelopers PREIT, Macerich buy 3 more Market St. buildings

Pennsylvania Real Estate Investment Trust and Macerich Co. bought three buildings on the 1000 block of Market, across from the Gallery at Market East.
Pennsylvania Real Estate Investment Trust and Macerich Co. bought three buildings on the 1000 block of Market, across from the Gallery at Market East. (JACOB ADELMAN / Staff)
Posted: February 13, 2016

Moves to remake the dilapidated Gallery at Market East into a high-end outlet mall are expected to give area property values a lift.

Among the beneficiaries of that boost: the developers behind the Gallery's redevelopment effort.

As their proposal for the Fashion Outlets of Philadelphia was coming together, Pennsylvania Real Estate Investment Trust (PREIT) and Macerich Co. were quietly buying up property across the street.

The acquisition of three buildings on the 1000 block of Market Street shows the developers' bullishness on the area's resurgence, which the $325 million Gallery project aims to fuel.

"We bought them because we think we're going to create significant value at the Gallery," PREIT chief executive Joseph Coradino said. "That's sort of the first thing in real estate: Try to buy the properties around the big project you're developing."

Coradino confirmed the purchases after an Inquirer analysis of area transactions linked the buildings' buyers to the Philadelphia-based mall developer.

The properties line the south side of Market Street between the Marshalls and Freire Charter School building at 10th Street and the Rite Aid at 11th Street, and include the former Robinson's department store.

Among the buildings' current occupants are a branch of the City Blue sportswear chain, two cash-for-gold shops, and the Funkomatic electronics store. Other storefronts are vacant.

PREIT and Santa Monica, Calif.-based Macerich plan to find new tenants for the properties after the redeveloped mall's occupants are selected, Coradino said.

Likely candidates are retailers that want to be in the area but are not a good match for the mall, which hopes to feature discount versions of designer-label stores and crowd-drawing restaurants.

The developers may want to use the properties to coax current Gallery tenants that are inconsistent with the Fashion Outlets concept but have long-term leases for their space, said Tom Londres, president of retail brokerage Metro Commercial Real Estate Inc.

Burlington Coat Factory, for example, likely had a long lease with options to renew when it opened as an Gallery anchor in 2003.

"There could be tenants that don't fit the tenant mix that's envisioned for the Gallery that are there today," Londres said. "This could be a satisfactory relocation for those tenants."

PREIT and Macerich used "straw," or surrogate, buyers to complete the three transactions, which closed in October and November 2014, Coradino said.

Such a practice could be used to gain better pricing from sellers unaware of an actual purchaser's larger plans or deeper pockets. The purchases totaled $17.4 million, according to records filed with the city.

The companies are now openly seeking additional nearby properties to the Gallery's north and south, Coradino said.

Their confidence comes despite acknowledgment this week that the mall's redevelopment may not be complete until late 2018 or early 2019, more than a year later than previously anticipated.

"Everything along there is of interest to us," he said.

It's not unusual for developers to make acquisitions around their development sites to cash in on the property values their projects help accelerate.

Radnor-based Brandywine Realty Trust, for one, began eyeing more land around 30th Street Station while working on its Cira Centre tower in the area.

Liberty Property Trust of Malvern, meanwhile, has teamed with Comcast Corp. to buy land diagonally across the street from the cable giant's second Center City high-rise, which is currently under construction.

"What they're doing is not unlike what any smart developer would do," Londres said of PREIT and Macerich. "Why let someone else capitalize on what the biggest investor is doing?"

The Market Street parcels are not the only places where PREIT and Macerich might be able to capitalize on their Fashion Outlets efforts. There are also three development "pads" on the Gallery's roof, each of which accommodates a 15- to 20-story tower.

Plans for those sites - which could include apartment buildings or a hotel - will be solidified once the outlet mall's development is further along, Coradino said.

"Their value is enhanced once we're able to say, 'Here's the project we're doing, and here are the tenants we have,' " he said.

jadelman@phillynews.com

215-854-2615 @jacobadelman

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