The 623,000 square foot Gateway
center, located in downtown Salt Lake City, is situated in the heart
of a section of the city that houses residential apartments,
entertainment venues and retail offerings. Since 2012, the
once-bustling lifestyle center has faced stiff competition and
declining sales due to the opening of another downtown mall, Taubman
Centers Incorporated’s City Creek Center. When City Creek opened,
16 retailers left Gateway Salt Lake to set up shop in the newer mall.
Last year, Retail properties launched a $2 million renovation of the
Gateway center in an attempt to compete with City Creek. However, due
to Gateway’s poor performance and questions about its future
viability and occupancy led its parent company to abandon the
renovation project.
Retail Properties purchased the
Gateway property in 2005 for approximately $144 million. At the
present time, the Gateway center backs a loan for over $96 million
and has been operating underwater for the past year. Last year, the
retail center’s net cash flow fell to $7.6 million, a decrease of
22 percent that only provided 98 percent of the funds required to
fully service the property’s debt obligations. While vendor
occupancy in the mall increased to 83 percent during that time, the
current year has set the stage for further decline. Occupancy rates
have fallen to 78.5 percent, and Gateway’s income has only provided
73 percent of the funds needed to service debt obligations. While no
mortgage payments have been missed on the property, the loan will
likely soon be referred to Midland Loan Services, a specialty loan
servicer.
During the past year, two separate
deals to purchase the Gateway Salt Lake property, each valued at over
$100 million, have both fallen through. Neither deal was completed
due to uncertainty about the potential future performance of the
shopping center and worries about competition with the nearby City
Creek Center. In light of Gateway’s failed sales and decreasing
performance, Retail Properties expects a continuing decline in
occupancy rates and profitability for the mall.
In the coming months, Retail
Properties’ strategy for Gateway involves working towards
stabilizing the mall’s occupancy and performance white attracting
the right buyer. They are currently working with several of the
mall’s vendors, such as GameWorks, Barnes & Noble and
Abercrombie & Fitch, to provide performance-based leases, in
which the stores’ rents are calculated at a set percentage of the
store’s monthly sales. With this and other measures, Retail
Properties hopes improve the Gateway’s situation.
