Anchors razed, tenants go under
One business owner calls shopping center’s hollowing out ‘constructive eviction’
With one ghost of retail past on the ground, the owners of Phillipsburg Mall appear poised to demolish another shopping hub of yesteryear: the former Bon-Ton department store.
Mall tenants expect, with debris from the now-demolished Sears cleaned up, that work will soon start on the 65,000-square-foot vacant space. A memo circulated by mall management over the summer, and reviewed by The Morning Call, advises tenants that a construction crew will be on site doing demolition work on the two former anchors. Tenants report crews are busy in the former Bon-Ton, doing preliminary work and stripping the interior.
What remains unclear is what the mall’s owners are planning. When reached by phone late Wednesday morning, Mason Asset Management President Elliot Nassim asked The Morning Call to call him back later that day, only to not be available at the time he requested. Mason Asset manages the mall for partner Namdar Realty Group.
In March, Nassim reiterated to The Morning Call that the partners were weighing a redevelopment, joint venture or sale at Phillipsburg Mall, reaching the “conclusion that this site is better suited as something other than a mall.”
Phillipsburg Mall is one of seven malls in the owner’s portfolio listed on a redevelopment/asset sales page in a quarterly presentation released Aug. 30 by Namco Realty LTD, the vehicle by which Namdar raises money by issuing bonds on the Tel Aviv Stock Exchange. On that page, the company touts its return on investment with each property, but now the malls have started to drag down overall results.
In the case of Phillipsburg Mall, the company claims a gross profit of $15.1 million, representing a 130% return on
cost when factoring in its purchase price of $11.5 million in January 2013. But the mall now has negative cash flow, a net operating loss and an occupancy rate of 37%.
Jeff Green, a partner at Hoffman Strategy Group, a retail consultancy, said the real estate under the mall is more valuable than the actual shopping center at this point. Demolishing the former Sears and Bon-Ton, he said, puts Namdar in a good position to redevelop the property itself with a small retail component and other nonretail uses, or sell it to another party that will redevelop it.
“The fact that they only paid $11.5 million for the property leads me to believe that they will likely try to sell the property,” Green said.
To get there, remaining mall tenants claim, the owners are purposefully emptying out the shopping center, making it easier to redevelop. All that open space was useful last month when a pro wrestling event lured a couple hundred people to the mall, which no longer has a food court.
Declining malls are increasingly being redeveloped across the country under such a dynamic. For example, in 2017, a Missouri real estate development firm scooped up the Schuylkill Mall near Frackville, switching the struggling center’s remaining tenants to month-to-month leases after the sale as it worked its way toward closing the mall to build two warehouses in its place.
In the early days of Namdar’s ownership of Phillipsburg Mall, which is spread across Pohatcong and Lopatcong townships, the shopping center’s staff tried to get new tenants, according to Ron Noonan, owner of the Gold’s Gym that opened there in 2014.
But those efforts have stopped, Noonan said, with only month-to-month leases being offered and an ownership group that doesn’t answer emails about the mall’s future or condition. Meanwhile, the community has a negative outlook on the mall and wonders when it might close, a situation that Noonan says has hurt his business as he tries to retain and attract gymgoers to 12- and 18-month memberships.
That puts Noonan in a tough spot, as someone who funneled savings into the gym and has an outstanding loan that will have to be satisfied.
Noonan likens Namdar’s strategy to “constructive eviction.”
“Basically, if I rented a house to you, and I cut off the oxygen supply to the house, you have two options: You either get out of the house or you die,” Noonan said. “That’s what this landlord does.”
Before the mall got to this point, the owners focused on monetizing the shopping center’s real estate.
Namdar sold off four outparcel restaurants for about $5.3 million between December 2014 and September 2015. Three of those establishments — Chickfil-A, Panera Bread and Starbucks — remain open, while the Friendly’s closed late last year and is listed for sale for about $1.1 million on Marcus & Millichap’s website.
Further, in March 2016, the owner established the mall as a condominium, allowing it to set up its department stores as units. Sears, The Bon-Ton and the closed J.C. Penney constituted Unit 100, while the Kohl’s space became Unit 200, according to filings with the Warren County clerk’s office. The condominium’s board of trustees, filings show, is made up of Namdar CEO Igal Namdar, Nassim and Matin Hakimi, all of Great Neck, on Long Island, New York.
The Kohl’s space was sold in October 2017 for $2.6 million to H&R Phillipsburg LLC, a Cedarhurst, New York, firm that lists its managing member as Joseph Eisenberger in filings in New Jersey. A message left for Eisenberger at Paradigm Commercial Real Estate LLC was not returned.
Another part of Namdar’s strategy is to lower real estate taxes, something it continues to attempt in New Jersey Tax Court by seeking significant reductions in the assessed value of the mall. Pohatcong Mayor David Slack, who has wondered whether demolishing large chunks of the mall could be geared toward that goal, said the township — at this point — is just hoping the site’s future involves a sustainable tax benefit to the community.
For now, Slack and the mall’s remaining tenants are left wondering about how much longer the 30-year-old shopping center will last. At Gold’s Gym, Noonan said the business is hanging in there on a day-to-day basis, wishing they had the money to relocate down the road — just like Old Navy did.
“They’re literally tearing the mall down around me,” Noonan said. “At this point, I’m waving a white flag.”
The Bon Ton stands empty in August at the Phillipsburg Mall. The former anchor is expected to be demolished soon, after the mall previously knocked down the old Sears.