Life without Bon-Ton: Disaster or opportunity for Lehigh Valley malls?
By Jon Harris Of The Morning Call, May 11, 2018
By the time the sweltering heat of August gives way to September, Bon-Ton will only be a memory in the Lehigh Valley. The going-out-of-business sales will be done. The cash will be tallied. The stores will be swept clean.
But the chain’s presence — or lack thereof — will still be felt, in the form of more than 400,000 square feet of vacant retail space in the Lehigh Valley area. To put that into perspective, that’s more than the combined office space of the eight-story PPL Plaza and 12-story Tower 6 in downtown Allentown.
If it was industrial space — 400,000 square feet would be a relatively small warehouse by Lehigh Valley standards — it wouldn’t stay vacant for long. But this is retail, a rapidly changing industry where it can take anywhere from nine months to two years, by some estimates, to fill an empty department store at a time when consumers increasingly prefer to click-and-order.
It all begs the question: Does the demise of Bon-Ton spell disaster for area shopping centers? Or does it present an opportunity?
The answer — at least right now — is: Time will tell.
The first step in the process is an auction of Bon-Ton’s unexpired real estate leases at the end of June, including several in the Lehigh Valley. If a lease gets no bids at the auction, however, it is rejected and released back to the landlord — a scenario for which area malls are preparing now.
At an industry conference last month in Milwaukee, one retail expert reportedly said most malls will be ecstatic to get Bon-Ton’s space back. While not thrilled by the departure of Bon-Ton, area shopping centers note the chain’s closure could work out — if they play their cards right. It could, they say, allow them to reposition their shopping center, boosting traffic and performance in the process.
“All these centers were not performing, so in that sense I can see why they would be excited to get the space back,” said Jeff Green, a partner at Hoffman Strategy Group, a retail consultancy. “But the question is, ‘What to do with it?’ ”
That’s a good question — and not an easy one to answer. Answer it wrong, and malls could go the way of the shuttered Schuylkill Mall near Frackville — as roughly one-quarter of the nation’s malls are expected to do by 2022. After all, losing an anchor can be “crippling for lower-quality malls and those in secondary and tertiary locations,” especially because in-line tenants often have clauses that allow them to reduce rent or terminate their lease when a major anchor leaves, Morningstar Credit Ratings said in a May 2 report.
In the traditional retail sense, there are few potential tenants out there capable of filling 100,000 square feet. Green pointed to retailers such as Dick’s Sporting Goods or Hobby Lobby that could fill smaller Bon-Ton spaces, but — more likely — an empty department store box would have to be split into multiple spaces to lure the retailers expanding today.
But there are plenty of alternatives. More centers are turning to grocery: For example, Wegmans late last month opened one of its largest supermarkets — a two-story, 146,500-square-foot location in a former J.C. Penney space at a Massachusetts mall.
Ex-department store spaces can also be used for restaurants, growing fast-fashion or discount apparel companies such as Primark or Zara, or entertainment purposes such as movie theaters, according to a report last year from commercial real estate firm Jones Lang LaSalle. Crayola, the Forks Township crayon-maker, fits into that latter category, especially when considering the company opened a Crayola Experience in a former Nordstrom in an Orlando mall nearly three years ago.
Green also noted department store spaces could be used for medical purposes or redeveloped into apartments or a limited-service hotel, lodging that would benefit mall restaurants. In yet another use, rumors have reportedly grown recently that the operators of Parx Casino in Bucks County are looking at a shuttered Bon-Ton store in Cumberland County for its planned mini-casino.
If all else fails and a mall is forced to close, Green pointed out not to discount the value of the dirt.
“Typically, malls are on very good real estate, so there’s plenty of value in the real estate,” Green said.
In fact, the owner of the Phillipsburg Mall in New Jersey is looking at alternatives for its property, including a sale, after the center lost its Bon-Ton this year. The Bon-Ton at Trexler Mall also closed earlier this year, and the Trexlertown shopping center is marketing the 62,000-square-foot space. Neither Phillipsburg Mall nor Trexler Mall officials responded to requests seeking further comment.
While those Bon-Tons are gone, four of the chain’s stores still remain in the Lehigh Valley: at Palmer Park Mall in Palmer Township; at South Mall in Salisbury Township; at Westgate Mall in Bethlehem; and at Richland Plaza near Quakertown. Managers and leasing agents at those properties are now gearing up for what could be a lengthy process to replace Bon-Ton.
Palmer Park Mall
The Bon-Ton at Palmer Park Mall has the best real estate at the Palmer shopping center, a spot that catches plenty of eyeballs as motorists pass by on Route 248 and Park Avenue.
The problem, however, is the chain’s operation there has a dated look, resembling more of a warehouse than an exciting traffic-driving anchor.
“If you were to drive by it at the peak of the holiday season on a nice day, you actually might think the building was closed,” mall general manager Jack Mitchell said, noting the stark difference between the Bon-Ton and the mall’s largest tenant, Boscov’s.
While the mall doesn’t yet have a date for when Bon-Ton will close, it knows it has an opportunity in front of it. Mitchell said the mall has fielded inquiries from restaurants and others interested in an out-parcel near the Bon-Ton, but parking constraints put those ideas on the back-burner.
Now, however, the mall has options.
Mitchell said that could involve knocking down part of the Bon-Ton, making room for an outparcel restaurant and then filling the remaining Bon-Ton space with new tenants. Or the former Bon-Ton could be re-purposed for a medical or entertainment use, he added.
At the end of the day, Mitchell said the mall is looking for long-term stability in the space — use or uses that will bring excitement and traffic to the rest of the property’s tenants.
After all, Mitchell said, the rest of the mall is almost full, after Rainbow Shops took a roughly 8,500-square-foot space in the fall. Now, the focus will be on finding something better for Bon-Ton’s space once.
“I would love to make the Bon-Ton building look a lot more attractive from the highway,” Mitchell said. “It’s not going to take a whole lot to change that.”
Like most, South Mall in Salisbury has lost tenants before. And to this point, the shopping center has been able to find replacements.
One of the more recent examples: Limerick Furniture & Mattress last year filled some of the space vacated by Black Rose Antiques, and the remaining 20,000 square feet was built out as a fitness facility for Full Circle Training. Full Circle opened in the larger space April 30, said Rachel Berosh, South Mall assistant manager.
Now, Berosh and the rest of the team have to devise a plan to replace the mall’s largest tenant: Bon-Ton. Meanwhile, the mall’s other anchor, Stein Mart, said this year that it’s hired advisers to “identify potential strategic alternatives” and boost performance.
Berosh said Bon-Ton’s closing could be a blessing in disguise.
The store takes up one end of the mall, flanked by interior mall tenants and Petco. Short of “demalling,” or knocking down several smaller stores to attract a big-box merchant, it could lead other retailers to move in there, she said.
“There’s been a few bigger companies that have looked at the shopping center,” Berosh said. “But we haven’t had the square footage they are looking for without taking away other stores.”
Still, she said, losing a store the size of Bon-Ton will be difficult — but not insurmountable — for the 406,000-square-foot shopping center.
Nowadays, the mall is putting on more events — such as its ongoing Food Truck Thursdays — as part of its plan to give customers an experience and become a downtown-like, community-minded property. Its relatively small size and hands-on, noncorporate ownership gives the mall a chance to work locally with small businesses, Berosh said.
That ability to be nimble will be tested again when Bon-Ton closes.
“We’ll have to bounce back like everyone else,” Berosh said. “Our size is to our advantage.”
The team at Westgate Mall in Bethlehem is in information-gathering mode, fielding requests from those interested in Bon-Ton’s site before deciding how to put the puzzle pieces together.
“This is a 10-acre parcel, and it’s obviously in a fantastic location,” said Derek Zerfass, senior vice president at Colliers International, the mall’s leasing agent. “The 10 acres that Bon-Ton sits on is a very good piece of real estate. There’s all sorts of interest and activity in it.”
Those options, according to Zerfass, could include anything from a mixed-use development to a retail redevelopment to a medical purpose. Adjacent to the Bon-Ton site is Lehigh Valley Hospital-Muhlenberg.
The situation at Westgate Mall also highlights, perhaps, a potentially forgotten party in the Bon-Ton fallout: Jack Williams Tire Co. Inc.
Bon-Ton subleases some of its space at Westgate Mall to Jack Williams, according to U.S. Bankruptcy Court documents. Jack Williams, which also subleases space from Bon-Ton at South Mall and Palmer Park Mall, declined to comment about how it could be affected by the department store chain’s departure.
Jack Williams’ subtenancy was disclosed in a document filed April 3 in Bankruptcy Court in which Westgate Mall owner Mark Pepitone is requesting Bon-Ton pay $2 million in repair and maintenance obligations at the department store. There has been no resolution on that matter as of yet, according to Bon-Ton’s bankruptcy docket.
While that process plays itself out, Zerfass said Pepitone is absorbing the interest in the site, near Route 22 and off busy Schoenersville Road. A decision could take several months, especially as the team tries to reimagine a site that has only been a department store since the early 1970s.
“There’s not going to be a quick answer,” Zerfass said. “This is going to take him some time to sort through.”
In late April, the team from Bennett Williams Commercial’s Exton office sat down with the owner of Richland Plaza to put together a plan of attack to replace the Richland Township shopping center’s largest tenant: Bon-Ton.
While the team tossed around the idea of shortening up the space, they’ve decided to — at least for now — focus on prospective tenants in the categories of entertainment, fitness, medical and retail.
“We’re trying to reach out to those four categories first and go from there,” said Bill Hess, a sales and leasing executive with Bennett Williams.
That process involves looking at what’s missing from the Quakertown market and reaching out to every possible tenant that fits the size requirements. What Richland Plaza could do, Hess said, is lease the more than 85,000-square-foot space to one large user — there are fewer of these nowadays — or break the space into, say, three spots of around 28,000 square feet each.
One advantage of the latter scenario, he noted, is it would allow for three new tenants — instead of just one — to help drive traffic into the plaza.
That would help the plaza, which has a 1,650-square-foot vacancy next to Subway, a 10,000-square-foot opening between Redner’s and Ollie’s Bargain Outlet, and a 3,100-square-foot gap flanked by Just Cabinets and Bon-Ton.
Bon-Ton’s space, by comparison, is a much larger area to fill. Hess did say, however, that Bon-Ton had a long-term lease under market value, so replacements at the plaza will bring per-square-foot rents “probably double” what the plaza owner is getting from the department store chain.
In fact, the base rent at Bon-Ton’s space at Richland Plaza is $1.50 per square foot, the cheapest rate among the area’s Bon-Ton leases, according to information from A&G Realty Partners.
For that reason, among others, Hess described replacing Bon-Ton as a welcome challenge.
“I think in the long run, we can find a tenant that’s not in the marketplace that can bring something new,” he said.
Upcoming Bon-Ton closures
A brief summary of the four remaining Bon-Tons in the area, according to public records and court documents.
Palmer Park Mall: Bon-Ton is its second-largest tenant, with 115,062 square feet of selling space. CityView Commercial is the owner of the 457,981-square-foot mall.
South Mall: Bon-Ton is its largest tenant, with 101,841 square feet of selling space. Nicholas Park Mall, led by longtime retail executive Richard T. Krantz, owns the 406,000-square-foot center.
Westgate Mall: Bon-Ton is its largest tenant, with 108,650 square feet of selling space. Mark Pepitone owns the 270,000-square-foot shopping center.
Richland Plaza: Bon-Ton is its largest tenant, offering 88,126 square feet of selling space. APS Associates owns the more than 200,000-square-foot center.
Morning Call reporter Anthony Salamone contributed to this story.