Next for the Gallery: 'Not just another mall'

Before he decided to reinvent the grim Gallery at Market East as a fashion outlet, Joseph Coradino considered converting it into a standard, suburban-style mall.

The CEO of the Pennsylvania Real Estate Investment Trust also thought about making it into a giant restaurant-and-entertainment venue, or even a full-price high-fashion mall.

But none seemed right for a Market East corridor that had grown decrepit, but now bloomed with new money, construction, and hope.

Coradino combined elements of all three to create a vision for the Fashion Outlets of Philadelphia, a $575 million development whose unveiling last week ended years of speculation about the future of the property.

"It's not just another mall," Coradino said. "We're saying, 'Let's build something unique and different in downtown Philadelphia that happens to be in what was a mall.' "

But observers and analysts wonder whether this shiny new mall will be better and more durable than the shiny new mall that opened in 1977 - and failed in short order.

At its core, the proposed makeover is revolutionary to the extent that it blasts open the Gallery's massive concrete facade. Bright, glass storefronts are to welcome pedestrians along several blocks of Market Street. Less radical is the proposed mix of retail, dining, and entertainment.

Major mall landlords, including PREIT at Cherry Hill Mall and Willow Grove Park, have added restaurants and diverse stores to reverse declines in foot traffic.

A defining feature of the Gallery plan is to connect the mall to life on Market Street through inviting facades and sidewalk cafés.

But even that aspect raised questions.

"How do you deal with both a street presence and an interior mall?" said Harris Steinberg, executive director of the Lindy Institute for Urban Innovation at Drexel University. "If we believe that the Gallery was in large part responsible for the death of Market Street by internalizing commerce, can it, by being half-urban, help with revitalization?"

Others say strong customer demand makes that moot.

Joseph Pasquarella, who has studied Philadelphia real estate for decades, points to Center City's recent population shift as proof.

Since 2006, no big city has seen a larger percentage increase in 20- to 34-year-olds, the so-called millennials. Retiring suburban baby boomers are moving downtown, too.

'The logical place'

"These people have to shop somewhere, they have to eat somewhere, and this is the logical place to do it," said Pasquarella, senior managing director of the Philadelphia office of Integra Realty Resources. "That changing dynamic, that demand, is what's going to fill up this mall."

The Gallery project constitutes the central piece of a hoped-for revival on Market East, the sorry eight-block stretch between Independence Mall and City Hall. PREIT's plan calls for discount outlets of clothing retailers such as Gucci and Prada, destination restaurants, and traditional mall veterans similar to H&M.

The project requires a tax break from the city of $127.5 million over 20 years. That finances $55 million of the revitalization, which includes $325 million in new spending.

On Thursday, City Council is expected to consider bills that would cede control of the property - built partly with city and federal funds - to PREIT.

"We have a good chance to see the Gallery proposal move forward," said Councilman Mark Squilla, whose district includes the mall. "I think it's a great use for Philadelphia."

Two-year project

Most important to council members, Squilla said, will be that the proposed tax break for PREIT doesn't harm the underfunded School District. Council could grant approval by mid-June, with PREIT then quickly breaking ground.

The project would take two years to complete.

Without Council approval, nothing will happen. With it, developers and city leaders said, Market East can seize new momentum from millions of dollars of investment in residential, retail, and restaurant projects.

Daniel Killinger, managing director of National Real Estate Development, which is building the $230 million East Market complex across from the Gallery, said the fashion outlets would be a good neighbor.

If PREIT connects the mall to Market Street, it will help create a vibrancy that has been missing for decades. He wanted to see a specific vision for the mall - and PREIT, he said, delivered.

The Gallery site has more than half-a-million households within seven miles, making it, in terms of density, one of the more desirable pieces of real estate in the country, said analyst Ki Bin Kim, of SunTrust Robinson Humphrey, who studies PREIT.

"It seems like all the ingredients for success are there; it's just how you cook it," he said. "This, at the end of the day, could be one of Penn REIT's most productive assets."

But today's voices for progress sound remarkably similar to those of 40 years ago.

In 1975, at the Gallery groundbreaking, one city official dubbed it a "dynamic and exciting concept that will reverse the decline of physical deterioration in this area."

But the Gallery could never take advantage of its location, between the Convention Center and Independence Mall, and atop SEPTA and PATCO rail lines.

Today the middle of Market East is a rough stretch populated by commuters, office workers, homeless people, and drug users.

PREIT CEO Coradino said the project - undertaken with the California-based Macerich Co. - would offer something fresh.

Traditional malls don't open onto the street, he said. They don't offer white-tablecloth dining. They don't always entice people to stay and have fun.

The Fashion Outlets, he said, will do that.

"It's hard to describe in words what an 'experience' is going to be," Coradino said. "If I were Hemingway, I might have a shot at it. The point I really want to drive home is we're not going to do an ordinary, run-of-the-mill suburban mall here."

Twenty years ago, anchor stores were crucial. Today, restaurants are the new anchors.

"If you want to characterize what we're doing, it's very customized," he said. "It's hard to put a label on it."

Coradino long analyzed the Gallery's potential. What he unveiled last week was not wildly different from what he had in mind seven years ago, when a casino was being considered there.

Before the global financial markets crashed in 2007-08, Coradino said he imagined "three, four, five, six restaurants" at the Gallery, along with retailers such as the Gap, American Eagle, Victoria's Secret, and Armani Exchange.

Since then, both retailers and mall landlords have moved to opening outlets instead of new stores. Simon Property Group owns Philadelphia Premium Outlets in Limerick, and jointly with PREIT is building Gloucester Premium Outlets, set to open in South Jersey this year.

One analyst who studies PREIT said the Gallery's challenges - including a nearby methadone clinic - might become a thing of the past.

If rents rise and older tenants leave, the new mall will draw wealthier shoppers as well as conventioneers and tourists, said Jonathan Miniman, of CBRE Clarion Securities in Radnor.

The new mall will need money - but also faith and patience, he said.

"It should work, given how vibrant Philly has become," Miniman said. "But it's going to take time."

Source: Philly.com