Doing just a fraction of the business that its developer had projected, a recently opened New Jersey mega-mall is hemorrhaging red ink, raising questions about the viability of an even larger shopping complex and amusement center planned by the same company in South Florida.
Nearly two years after opening, the so-far disappointing financial performance of the American Dream mega-mall and entertainment complex in the Meadowlands, just outside of New York City, has forced its developer, Triple Five Group, to seek a debt restructuring plan that would allow it to retain ownership of the project.
Meanwhile, financing for the planned $4 billion American Dream Miami, south of the Broward County line where the Florida Turnpike intersects with Interstate 75, has not yet been secured.
“It’s too early for financing,” said Miguel Diaz de la Portilla, attorney with the firm Gunster who is representing the project planned on 175 acres in northwest Miami-Dade.
But whether lenders would still see the South Florida project as viable if the New Jersey mall fails to become profitable remains to be seen.
Asked if the financial difficulties created by the New Jersey project could affect the developer’s ability to secure financing for the South Florida project, Diaz de la Portilla responded with just one word: “No.”
Aside from Diaz de la Portilla, officials of Triple Five Group did not respond to requests for comment for this story. Nor did Stuart Wyllie, president and CEO of Graham Cos., a large landholder that plans its own mixed-use development directly to the south of American Dream Miami, with 2,000 apartment units targeted to mall employees.
A spokeswoman for Miami-Dade County Mayor Daniella Levine Cava, who as a county commissioner was critical of the project, said Friday that “the mayor is aware of the concerns about the developer and we’re doing our due diligence and exploring what all of our options are.”
Mixed reviews for New Jersey mall
Reviews from visitors to the New Jersey mall, situated 10 miles from Manhattan, to online review sites such as Yelp have been mixed. Consumers say they are impressed with such attractions as the large indoor ski slope, an immersive aquarium filled with sea creatures and an indoor water park. But many complain that prices are high.
Water park tickets start at $83 for seniors and $99 for ages 10 and up. Tickets for two hours on the ski slope start at $69.99, including equipment rental. A walk through the aquarium is $23.99 for children and $28.99 for adults. And access to the Universal Nickelodeon theme park, featuring a roller coaster and other thrill rides, begins at $59 for children 3 to 9 on “peak days.”
Retail and food options are similar to other malls, visitors pointed out while also noting a conspicuous number of still-vacant storefronts and an absence of shoppers. A luxury wing, featuring stores such as Saks Fifth Avenue, Hermes and Tiffany & Co., was just opened Friday.
A critic from New York Magazine’s website Curbed.com described the appearance of the mall as a “half-heartedly bold and quasi-apologetic” jumble of colors, motifs and architectural styles “tailored to the taste of 6-year-olds.”
Opening just before the pandemic was an especially poor turn of luck, the writer noted. The mall opened in late 2019 with some portions unfinished, then was forced to close for six months in March 2020 as the state maintained strict COVID-19 restrictions.
It reopened in October to a permanently changed retail environment, in which quarantining shoppers’ embrace of online buying and home deliveries had accelerated, killing off once-formidable retail brands like Pier 1, Lord & Taylor and Stein Mart.
Disappointing sales, mounting debt
Last spring, Triple Five Group defaulted on a $1.2 billion construction loan and was forced to surrender 49% of their equity stake in two other malls, Mall of America in Bloomington, Minnesota and West Edmonton Mall in Alberta, Canada, that had been pledged as collateral for the New Jersey project.
Projected to generate $2 billion in sales in its first year, the New Jersey mall generated just $139 million in the first half of this year, forcing the developers to hire legal and financial specialists to help them restructure $3 billion in debt, according to an August report by Bloomberg that said the figures were based on publicly reported data.
Financial experts interviewed by the news service said that Triple Five Group, a Canadian firm privately owned by the Ghermezian family, could lose their remaining equity stake in the New Jersey mall. Lenders are likely to require the company to put up hundreds of millions of dollars or get the money from a new equity partner just to be granted another 18 to 24 months to turn the project around, the story said.
Miami-Dade Dream delays
In Miami-Dade County, progress on what has been billed as the largest mall in America is barely noticeable at the project site, as the projected opening date has been pushed back from 2021 to late 2026.
Project attorney Diaz de la Portilla said the developers have been working with state and federal highway agencies to improve interchange access to the site. A new Florida Turnpike interchange and lane extension from 102nd Street to Interstate 75 is currently under construction and slated for completion in January 2025, he said.
When the project was announced in 2015, developers provided renderings of a sprawling $4 billion, 175-acre, 6.2 million-square-foot spectacle projected to draw more visitors than Disney World’s Magic Kingdom. It would include a list of attractions similar to the New Jersey mall’s: indoor ski slopes, skating rink, aquarium, submarine rides, a live performance center, gardens, water park, movie complex and hotels, along with 3.5 million square feet of retail.
Today, no ground has been broken, no site plan has been submitted for county approval, and published comments by Diaz de la Portilla suggest that plans remain in flux.
Talking to the business journal Miami Today in October 2020, Diaz de la Portilla said the developers were considering changes, including reducing the percentage of retail space within the floor plan and rethinking whether all of the attractions needed to be indoors.
Almost a year later, in early September, Diaz de la Portilla told the same paper that the developer was working on a new design that would allocate just 30% of space to retail stores.
Asked about that new design the following week, Diaz de la Portilla told the South Florida Sun Sentinel in a text message that, “We have elected to go with the original plan for now.”
Will investors back another mall?
Financial experts interviewed for this story questioned whether, in the wake of the troubles at the developer’s New Jersey mall and at malls across the country, large banks would be willing to lend the $4 billion or more needed to make American Dream Miami a reality.
Sofia Johan, associate professor at Florida Atlantic University’s School of Business, says lenders understand that changes in shopping habits, solidified during the pandemic, have made retail a risky bet.
“When was the last time you walked into a mall? When was the last time you went to a movie?” she said. “It’s a higher risk project than anyone could have anticipated five years ago, especially with COVID and the way things have changed. They would be investing in a concept that would have worked 20 years ago.”
With mall anchor stores like Sears and J.C. Penney shutting down locations in a last-ditch effort to stay alive, she asked, “Who are the anchor tenants going to be? A ski hill and a water park?”
Traditional anchor store names are absent from the New Jersey American Dream’s directory, though there is a Skecher store, Best Buy and Victoria’s Secret.
If large institutional lenders such as Goldman Sachs, JPMorgan Chase, Starwood Property Trust Inc. and Soros Fund Management — all of which stand to lose money on the New Jersey mall — no longer have the stomachs to invest in such a project, developers might have to find another source, such as a Russian bank, she said. That kind of financing would likely command high interest rates and make profitability an even larger challenge.
The Ghermezian family is still reported to have $548 million in assets it could use as collateral, she noted. But she questioned whether that’s actual cash or investment shares that might not actually be worth as much as reported.
From South Beach to an indoor mall?
Brett Forman, executive managing director at the Boynton Beach office of Trez Capital, which arranges financing for commercial real estate projects, said it could be difficult to find financing “at a level that would be advantageous to the borrower.”
Even with the amusements, American Dream Miami would be competing with Sawgrass Mills, which calls itself the “largest outlet and value retail shopping destination in the United States.”
“It’s a phenomenal success,” he said of Sawgrass Mills. “It never made sense to try to build another. I don’t know of any place in America that can support two.”
While indoor amusements might make sense at the Mall of America in Minnesota, subject to winter conditions for up to nine months of the year, it makes less sense 10 miles from Manhattan, the most popular tourist attraction in the U.S., or South Florida, home to year-round outdoor recreation.
“Are people vacationing at South Beach going to want to spend one of their days in an indoor mall?” Johan asked.
Another factor the developers will have to take into account, Forman said, is the high cost of labor and building materials compared to when the project was announced in 2015, he said.
Johan said she’s concerned not that large banks might lose money, but that the developers will seek to leverage municipal bonds to help finance their project. Bloomberg’s story said the New Jersey mall is backed by $1.1 billion in municipal debt.
The municipal debt includes about $800 million in bond notes backed by payments that the developers make to bondholders in lieu of paying property taxes, and another $290 million in bonds backed by a pledge of 75% of the sales tax receipts from mall purchases.
Agreeing to such financing might not expose taxpayers to potential losses, but it reduces tax revenues that would have been available sooner if such projects were privately funded and profitable, she said. If a project financed with municipal bonds goes bankrupt, communities might be forced to make up the lost revenue by increasing property taxes or forgoing projects like new schools, she said.
Diaz de la Portilla said it’s too early to know whether the developers will seek to finance the South Florida project with municipal bonds.
Rather than see Miami-Dade County issue such bonds for American Dream Miami, Johan said the county should instead use the money to back much-needed housing projects, which would generate property taxes.
In Forman’s view, investing in multifamily residential projects is a safer investment anyway. “They would be better served to build a massive apartment complex with incredible amenities, with access to transportation that they can use to take themselves to work to the east or west, north or south,” he said.
Ron Hurtibise covers business and consumer issues for the South Florida Sun Sentinel. He can be reached by phone at 954-356-4071, on Twitter @ronhurtibise or by email at rhurtibise@sunsentinel.com.
