Wells Fargo takes possession of Pittsburgh Mills in auction
Bank repurchases mall with a $100 bid
The struggling Galleria at Pittsburgh Mills mall went on the auction block Wednesday and was sold without any immediate change in ownership.
That’s because the successful, and only, bid of $100 was made on behalf of lenders who had taken control of the property after Wells Fargo Bank foreclosed on the sprawling shopping center along Route 28 in 2015.
Essentially, the bank bought the mall from itself so it could then either rehabilitate or sell the property on its own terms.
Still, the ultimate fate of the 1.1 million-square-foot mall anchored by Macy’s and Dick’s Sporting Goods will take time to unfold.
Wells Fargo says it is owed $142.9 million. Given the amount owed, “It’s not at all surprising the lender would want to purchase the property back” and deal with it on its own, said Herky Pollock, executive vice president at real estate firm CBRE.
The $100 bid was submitted by the law firm Dinsmore & Shohl LLP, acting on behalf of the special servicer of the loan for Wells Fargo. An attorney with the law firm’s Pittsburgh offices, Nicholas Godfrey said he could not comment further.
The auction process lasted less than five minutes on a gray Wednesday morning in the former lobby of ITT Technical Institute, which had operated a facility inside the mall until it closed last fall. About 18 people claimed chairs to see how the sale turned out.
Anthony Stephens, general manager of the enclosed mall, said he anticipates no change in management.
Mr. Stephens works for Jones Lang LaSalle, which was tapped to manage the mall as part of its foreclosure.
Brick-and-mortar stores under pressure
While the Frazer mall has had its own unique challenges since opening in 2005, the shopping center is not the only regional mall battling on multiple fronts. Brick-andmortar stores across the country are trying to adapt to changing purchasing habits and growing competition from online retailers.
Meanwhile, many big names such as Macy’s and Sears are downsizing.
Even so, the Pittsburgh Mills had a rocky start, Mr. Pollock noted.
The property was originally developed as a partnership between Johns town based Zamias Services Inc. and Mills Corp, a Virginiabased firm that filed for Chapter 11 bankruptcy protection in 2007.
“It was initially supposed to be a typical Mills [Corp.] development, which was more of an entertainment and lifestyle center,” Mr. Pollock said. “Then Mills Corp. went bankrupt and took the direction toward a more regional mall.
“That mall is simply too large for the trade area,” Mr. Pollock said. “It cannot sustain itself in current form and fashion, and needs to reposition itself to be viable.”
Trepp LLC, a New York City market research firm that tracks the mall, noted the Pittsburgh Mills “is a distressed property with serious financial problems.”
According to a report from the firm, the mall’s assessment value has plummeted over the years. In 2006, the enclosed shopping center was valued at $190 million, compared to just $11 million in March 2016.
“Basically, there are not enough customers going to the Galleria to support the retailers, so the retailers close,” Tom Fink, senior vice president and managing director of Trepp wrote in an email. “Whoever buys the Galleria will need to invest significant dollars and change how the site is used.”
Single bid no surprise
The fact that there were no other bids isn’t a surprise, because of the nature of the foreclosure, Mr. Fink said. The special servicer of the loan, C-III Asset Management, basically purchased the mall on behalf of the trust behind the loan.
“This was a consensual foreclosure, so there would not have been any other bidders,” he said.
This type of deal is pretty typical, said Steve Jellinek, vice president, CMBS analytical services at Morningstar Credit Ratings. “In a lot of these cases, there typically is not a contesting bid and the asset goes straight to the trust,” he said.
Now, it’s up to the lenders to decide how best to recoup what they’re owed.
“The mall has been devalued so much, so they want to minimize the loss,” Mr. Jellinek said. “They have to make a decision on how long to hold it and how much money to put into it.
“The problem of regional malls is the loss severity tends to be higher than ones located in or near big cities,” Mr. Jellinek added, noting it’s difficult to fill the space left when big tenants, like Sears, and smaller stores close. “Then you see a marked decrease in cash flow and it’s harder to repurpose and refill.”