(Bloomberg) -- New Jersey's American Dream super mall took years to build, opening just before a pandemic shut down vast parts of the country. It's still not catching any breaks.
In what should have been its biggest quarter yet for sales, the mall instead reported a 0.7% decline after a fire at one of its biggest attractions, damage from Hurricane Ida, and surging cases of the omicron variant in the New York area kept visitors away.
Sales for the three months ended December fell to $82.4 million, down almost 1% from the quarter ended Sept. 30, according to a securities filing on Friday. For the year, American Dream had sales of about $305 million, or 15% of the $2 billion that a 2017 forecast projected it would bring in during its first year of operations.
“It's just been one disappointment after another,” said Gabriella Santaniello, founder of retail research firm A-Line Partners.
Just two days ago, American Dream disclosed it nearly emptied a reserve account to make a $9.3 million payment on about $290 million of bond supported by sales tax receipts. The payment was due Tuesday.
In August and September, Hurricane Ida brought flooding. Then the mall's ski hill, part of a range of attractions at the shopping and entertainment complex, was hit by a fire that also disrupted dozens of shops and eateries, according to Don Ghermezian, co-chief executive officer of the American Dream.
“The remaining tenants are all seeing very significant sales increases,” said Ghermezian.
Pandemic Waves
The 3.5-million-square-foot megamall, located across the Hudson River from New York City, opened its entertainment complex in October 2019. Five months later, Covid-19 spread through New York and New Jersey, spurring lockdowns to contain the public health emergency and postponing the opening of the mall's retail stores until October 2020.
Successive waves of the coronavirus have discouraged shoppers and tourists alike. The mall was just 77% leased as of Jan. 1 and leases for another 5% of the mall were under negotiation, according to securities filings.
“We anticipate by the end of 2022 we will be 93% to 95% fully leased,” Ghermezian said. The ski hill will be back in action in May.
The omicron variant of the novel coronavirus broadly weighed on retail sales in the U.S. at the end of last year. The number of people visiting American Dream last quarter largely tracked with the activity logged in other top malls and the broader retail sector, according to Ethan Chernofsky of Placer.ai, a foot-traffic analysis company.
The company's data showed a drop off in visitors from September through October before increasing in November. Foot traffic was above the mega-mall's average levels in December until “the weight of Omicron suppressed visits,” according to Chernofsky.
Competition, Tourism
Vince Tibone, a retail analyst at real estate research firm Green Street, said American Dream is facing several headwinds, including local competition and low levels of international tourism, which was envisioned driving sales.
“The jury is still out on what's going to be the normal sales volume of this mall,” he said.
American Dream's financial disclosures, which were minimal to begin with, have provided even less detail in the second half of 2021.
In the first two quarters of 2021, the mall reported gross sales by each month and for four categories: Retail, attractions and entertainment, dining and parking. Beginning in the third quarter, American Dream reported gross sales for the three months and didn't break out the categories.
The lack of disclosure about the mall's performance has drawn the ire of holders of $290 million debt supported by sale tax receipts. A Feb. 2 filing disclosing the bond reserve draw included a letter from bond servicer Trimont Real Estate Advisors saying American Dream's owners weren't complying with obligations under the bond documents to provide updates on project costs and performance.
“The developer has provided Trimont with minimal information despite specific requests for additional items reasonably necessary to accurately track and understand certain aspects of the project's performance,” Trimont said in the Jan. 18 letter. The lack of information could directly impact the bonds, according to Trimont.
Remedies for the breach “range from specific performance to a special redemption of all the bonds,” the letter said.
The mall's reporting complies with requirements, Ghermezian said, who added his staff was too short-handed to provide all the information Trimont requested after furloughing about 1,400 people because of the pandemic.
“As of today, all the information has been submitted,” Ghermezian said. “It was simply a matter of manpower.”
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