Why the WTC mall could look like a ghost town on opening day
Shops are already backing out, and that could really cut into Westfield's profits
When Westfield Corp. signed a deal in 2012 to create a glistening new shopping center in the belly of Santiago Calatrava’s $4 billion World Trade Center transit hub, co-CEO Peter Lowy promised that the Australian developer would sign world-class tenants and create a new standard for retail in the city.
“We’re going to do something that no one can imagine,” Lowy said.
But as the World Trade Center Mall buzzes with the sounds of jackhammers and saws, at least four retailers have already walked away from their leases and a number of other shops won’t be open for business by mid-August.
Such a scenario would slice into Westfield’s profits during a critical stage of development and could give rise to the belief that the project won’t be a success.
“If a large percentage of the center doesn’t open, there’s a good likelihood there will be less traffic, which means less business and less sales,” said one source familiar with the way operators like Westfield [TRDataCustom] negotiate their leases. “If a tenant is promised 85-percent occupancy when the mall opens, and you only have 60 percent or 70 percent, [the tenant] is only going to pay a percentage of their business and not the base rent.”
A representative for Westfield declined to comment.
Mall operators like Westfield generally negotiate co-tenancy thresholds with their tenants, usually somewhere in the area of 70 to 85 percent of the gross leasable space. If that threshold isn’t met by opening day on Aug. 16, the tenant gets a break on rent. Tenants usually will forgo paying their base rent and only pay a percentage of sales until the co-tenancy threshold is met. In a mall the size of the one at the World Trade Center, if just 54,750 square feet of the 365,000 square feet isn’t up and running on opening day, Westfield could start to feel the heat.
Already, the operator has moved to terminate leases with at least four tenants who refused to take possession of their space, as The Real Deal previously reported. Shoe shop Dune London, clothing retailers Bebe and True Religion, and coffee shop Fika are relatively small, combining for about 6,400 square feet.
But last week construction workers at the job site told The Real Deal that not all the stores will make the August deadline. And several sources said fast-fashion retailer H&M, which has signed on for about 25,000 square feet, won’t make the grand opening, though that couldn’t be independently confirmed.
“[Westfield] can’t afford to have major tenants not open,” a source told TRD in May.
The long-awaited WTC Mall project has suffered a comedy of construction errors and bureaucratic blunders from the Port Authority of New York and New Jersey and the Metropolitan Transportation Authority since construction began in 2007.
David Firestein, managing director of the retail brokerage Shopping Centers Group, said he doesn’t think retailers are losing confidence in the project, but that delays have made it difficult to get everyone on the same page.
“The problem with the project is that it’s such a long lead time,” he said. “Sometimes [tenants’] plans change. I wouldn’t put it as people are having cold feet on the project. Sometimes stuff happens. I don’t think there’s any sort of mass feeling like, ‘Hey, let’s get out of Dodge.’”
Another challenge for Westfield involves its own personnel.
In November, director of leasing Rob Wyant took a job as chief operating officer of South Carolina-based shopping center developer EDENS after five years with Westfield. This month, Westfield announced that David Ruddick and Eric Shaughnessy had taken over as co-executive vice presidents of leasing in the U.S. Wyant couldn’t be reached for comment.
Westfield controls the retail site under a 99-year lease it acquired in 2001, several weeks before the 9/11 terrorist attacks. The company assumed full ownership of the site in 2013 when it bought the Port Authority’s 50 percent interest for $800 million.