Tuesday, November 29, 2011

King of Prussia mall plans new wing

"Just months after acquiring majority ownership of the King of Prussia mall, real estate behemoth Simon Property Group Inc. is set to announce plans Tuesday for a new wing of stores and restaurants that would turn the East Coast's largest shopping mall into an even more formidable retailing powerhouse.

Particulars of the plan center on the construction of a 140,000- square-foot indoor corridor to connect the Court with the Plaza at the 2.6-million-square-foot mall.

The troubled economy's impact on consumer spending has not crimped King of Prussia's appetite to expand, due to its geography: It is located among some of the Philadelphia-area's highest-income households.

"This is a uniquely wonderful market," said David Contis, who became president of Simon Malls five months ago after working with Chicago-based real estate magnate Sam Zell and who is trumpeting the expansion plan.

Within a 10-mile radius of the Montgomery County mall, 41 percent of households have incomes of $100,000 or greater. That area is home to more than a half-million people in 220,000 households.
This has helped make the King of Prussia mall the envy of retail landlords nationwide by boasting retail sales of $700 per square foot - a figure so high it is shared by only a small handful of other malls nationwide.

Its performance is so hot that it is dubbed a "trophy" mall, in industry parlance.

Another reason King of Prussia has the financial wiggle room to invest in capital expansion despite the difficult economy is that it has a wide array of stores catering to financially squeezed shoppers and the more well-to-do.

Among its 327 stores are Bloomingdale's and Neiman Marcus on the high end, middle-market Sears and Macy's, too, and an equally diverse offering of specialty stores.

"When luxury is doing well, maybe the mid-market [retailer] isn't," Contis said. "We have such a diversity of tenants, we can weather the storm."

He added, on a more short-term optimistic note, that early tallies of consumer spending during the Black Friday holiday were encouraging compared with the prior year.

"If you look at retail sales for this Thanksgiving," Contis said, "they were pretty good."

A single holiday sales report, however, is not the driver behind such a massive decision. The expectation of an eventual economic recovery - and the desire to cash in when it comes - are the true catalysts in this sector, said investment analyst Benjamin J. Yang, who monitors Simon's financial disclosures and business moves for Keefe, Bruyette & Woods Inc., of San Francisco.

Yang said this expectation was the operative force at work at various construction projects under way across the country, whether it be a new outlet mall - Simon is the largest owner of outlet malls nationwide and owns Philadelphia Premium Outlets in Limerick - or upgrades of regular malls. (An expansion project is on tap also for Willow Grove Mall, owned by Simon competitor Pennsylvania Real Estate Investment Trust, based in Center City.)

"The construction that's going on today is based on an expectation of what the economy's going to look like a few years from now," Yang said. "Commercial real estate, retail real estate is a very long-term business."

Simon came up with the idea for King of Prussia soon after the publicly traded company increased its 12 percent stake in the mall to 96 percent, in August, according to Contis.

"We just created the concept," he said. The newly minted Simon company executive said he first discussed the idea of building a new corridor of upscale shops and dining spaces in a meeting with Upper Merion Township officials Oct. 26.

He expressed confidence that his leasing team would have little trouble securing commitments from prospective tenants as the project moved closer to reality.

"It could open in a couple of years," Contis said. "We have the demand for space."

Designs and approvals are still in early stages, but the plan is to construct an enclosed corridor of shops - including restaurants that would be run by notable Philadelphia restaurateurs, Contis said - linking the 1.7-million-square-foot Plaza with the 900,000-square-foot Court.

This would eliminate the need for shoppers to walk across a covered outdoor walkway to leave one wing of the mall to get to the other. The corridor would be built in a parking area.

New tenants could include national retailers looking to land their first spot at King of Prussia, merchants who want to relocate from elsewhere in the mall, or small local boutiques looking to expand, Contis said.

It would come after the planned completion next year of a 122,790-square-foot redo of a onetime John Wanamaker department store anchor at the mall. Most of that new space, to be carved into 10 new stores, should be leased by the end of this year end and open in 2012, Contis said.

The Wanamakers construction project was already under way when Indianapolis-based Simon, billed as the nation's largest real estate company, took a controlling interest in the formerly privately owned mall this fall.

Simon has sufficient cash from operations to finance the new project."

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