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Providence Place Mall’s near-term future will be determined by what Providence Place’s owner decides to do. The owner is Brookfield, a Toronto-based investor that operates real estate across five continents worth $260 billion.
Providence Place makes up less than 0.1% of Brookfield’s real estate assets, using a realistic value for Providence Place. In other words, Providence Place is worth to Brookfield what, say, a mailbox is worth to a Rhode Island homeowner’s property value.
How is the owner, Brookfield, thinking? Providence Place’s rent and parking revenue grew steadily after opening in 1998. Revenue reached $53 million in 2007 and held steady through the great recession, then resumed growing and hit $59 million in 2015 and 2016. But in 2017 – 3 years before Covid hit – Providence Place’s revenue entered a steady decline, falling to $39 million last year.
Since the revenue decline began, Brookfield has invested in Providence Place, spending $20 million to improve the parking and paying millions to Boscov’s to get this mediocre retailer into the vacant Nordstrom space.
However, Brookfield owes a $320 million mortgage on the mall, a ten-year loan that was made in 2011. When this $320 million came due in May 2021, Brookfield did not refinance the mortgage. The property’s value has nosedived to a level below the debt amount – Providence Place is “underwater.” Instead, Brookfield and the lender agreed to two one-year extension options. Brookfield and the lender have until May 2023 to make tough decisions.
Earlier this year, Brookfield buried in a financial report it intends to shed 93 US shopping malls, nearly its entire mall portfolio. Ideally from Brookfield’s viewpoint, Brookfield would sell Providence Place for more than the $320 million mortgage amount, pay back the lender, and move on. This is unlikely to happen. Nobody will buy Providence Place for $320 million today.
Witness Water Tower Place on Michigan Avenue in Chicago. Like Providence Place, Water Tower Place is a downtown multi-level mall run by Brookfield and encumbered by a mortgage in the $300 million range. Unlike Providence Place, Water Tower Place is located in a proven retail hub of a global city. In April 2022, Brookfield gave up on Water Tower Place and turned over ownership to the lender.
Brookfield won’t own Providence Place in a year. The lender will take ownership then hire a management company to operate the property. If Brookfield – a sophisticated owner of more than 100 malls - couldn’t turn around Providence – nobody can. In the next several years, the mall will continue to bleed retailers. The Apple store will relocate to Garden City. Providence Place will become a dead mall.
The city of Providence will be stuck with the $1 million annual payment-in-lieu-of-taxes (PILOT) until 2028. Why would Brookfield agree to pay more when they don’t intend to own the mall for the long term? By 2028, the market value of the mall will have fallen so far that the debate will turn from what the mall owner pays the city in property tax to what can the city do with the Providence Place real estate. Mayor Elorza’s statement, “If we do nothing, come 2028 the mall’s going to be paying something in the $20 million range,” is so unrealistic it diminishes his credibility to have made it.
Unfortunately, the likely outcome of Providence Place will resemble the Superman building. A formerly thriving commercial property becomes obsolete, remains standing, and declines in value to zero, or roughly the value of the land less the building’s demolition cost.
Ideally, the city and state will act. One example is Columbus, Ohio, which acquired a relatively new, but dying, downtown mall. The city demolished the building, kept the parking, and built a park on the site. At Providence Place, this demolition and park development project would cost in the mid 8-figures.
I've wondered myself what will come of the facility. I was looking at condos at the nearby 903 (other side of the overpass) which seem to sell briskly. We shall see i guess.
Are you still considering the 903, or have you passed on them?
Sears in Braintree looks like it will be closing for good soon. It is not looking good, a lot of empty space, disheveled looking.
There's still a full service Sears around? I thought it was only auto service centers and the scratch and dent appliance store here and there.
Breaks my heart, honestly. My mom worked in the Midland Mall Sears for years, from the floor to the back office. Lots of my youth was spent meeting her there for lunch or to get a ride home after my summer job.
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