Joseph Coradino On The Mall of The Future

Many of us in the retail and shopping center industry have been following the transformation of PREIT since Joe Coradino became CEO in 2012. It has been a wild decade in the industry and for the Company, filled with a great many challenges and tough decisions.

Led by Chief Executive Officer, Joseph Coradino, the company has repositioned its portfolio and is taking a more sustainable approach to growth by developing and investing in the communities in which they operate.

Joe took the time to speak with IRG Magazine about how he started in the shopping center business and where he believes it’s headed.

Shannon Quilty (SQ): It’s great to meet you, Joe! Thank you for taking the time to speak with us today. Let’s start at the beginning. Your education was geared to urban planning and here you are leading PREIT. Tell us about that journey.

Joseph Coradino (JC): I began my education really looking at the financial world. I was an accounting major for a good deal of my time at Temple University. Then I took a class in city planning and got bitten by the bug, if you will. I initially thought I was going to go to law school, but when I finished undergraduate school, I decided to go for a master's in city planning.

I went out to the University of Arizona which was a tremendous change from Philadelphia! One of my professors was Morris Briggs who at one time was the president of Federated Department Stores, you know, Bloomingdales, Abraham & Straus, Masons, on and on. He really introduced me to the concept of being a shopping center developer. I never even knew that was a real job!

From there he introduced me to a gentleman named Roy Drachman - a shopping center developer and the third chairperson of International Council of Shopping Centers. Roy really began to teach me the business. When I finished my education at University of Arizona, he got me my first job with the original developer of King of Prussia Mall, Morris Kravitz. For context, The Morris Kravitz Company became the MA Kravitz Company, became Kravco, became Kravco Simon became Simon. At Roy Drachman’s suggestion, I called Mr. Kravitz and said, “Mr. Kravitz, I'd like to schedule an interview." He replied in his raspy voice, “Interview? Roy's word is good enough. You start work on January 2nd” and that's how my career began.

on shopping malls for about four years, and then transitioned to building high-rise office for about fifteen years. Finally I came back into the mall business and the rest is history. In 2012, I became the third CEO of Pennsylvania Real Estate Investment Trust.

SQ: I think it’s interesting that you took fifteen years to work in the office sector and then returned to shopping centers. In many ways it's a different skillset.

JC: It actually served me well. I originally left the retail business because I was young and impetuous, and I thought the deals were too small - a 2,000-foot store here, a 5,000-foot store there. I could do a half a million square foot office lease. I could build a building, which I did. If you compare the industries, the biggest difference is the mall business is very much a relationship business. It's the same retailers over and over.

In the office building business, it's kind of a one and done. Do a ten-year lease with a company and you are onto the next company.

York ICSC and did all your deals while you were there. Now, local, regional tenants and alternative uses all are part of the mix. It isn't so much a pure relationship business now. I think it has served me well as the business has transitioned from pure mall rats, if you will, to a whole blend of retailers, right? Local retail, open air tenants, restaurants, entertainment, healthcare, residential, all of that. From my perspective, I was more ready, willing, and able to do that than if I had always been in retail development.

SQ: I have done a little bit of industrial and office too. One of the biggest differences from retail is the emotion and psychology involved in crafting a shopping center. You don't really have to consider those things when you're doing an office or industrial development. Would you say that's true?

JC: Yes, to an extent. I delivered a presentation a few years ago where I said all the real estate sectors are merging with one another.

If you think about the office building business and you go to World Financial Center or Hudson Yards, retail has become a very important component of office. If you look at a mall, you will see office has become part of retail. We’re even adding apartments and hotels to malls, too. You’re seeing this merging occurring in the business.

I had breakfast with the CEO of an office REIT this morning and we discussed this very topic. Now when you build an office building, you have to think about the dining and entertainment as part of the mix - fitness and co-working, hotels and on and on and on. All of that has become part of particularly urban office and to a certain extent, some suburban office. We are seeing the office building business start to borrow from the retail business and the retail business start to borrow from office.

I think that creativity is transcending. I used to joke with my friends that in the office-building business, you sign a lease, go back to your office, put your feet up and wait for the rent checks to roll in. Our business is much more of an operating business where when you sign a lease, it’s the start rather than the end.

SQ: Absolutely. That's a great way to put it. If somebody goes dark in your office building, it is not typically going to impact the other tenants.

JC: And you have no responsibility or involvement in delivering customers to those office tenants.

When I say the job starts with the signing of the lease, if we don't drive traffic in a mall we develop, the tenant comes to us asking for a rent reduction. In an office building, if a tenant doesn't do business, it's their problem, not mine. I don't drive business for you, I just give you a place for your offices.

There are many differences one cannot ignore, but you will see some movement towards the center. I happen to think, for instance, most major cities like New York or Los Angeles are really bringing dining, entertainment, and retail into an office environment. When you go to cities like Philadelphia and Atlanta and Boston, not so much. There is an opportunity to add value to office through retail and add value to retail through office.

We recently did a deal where we bought back a Sears store in Moorestown, New Jersey. We flipped it to Cooper University Healthcare, who is turning it into a165,000 square foot medical office facility. So, we're moving from pure retail to medical. The interesting thing about that is the mall right now gets about 1.1 million visitors annually. Cooper Health Systems will bring in 1.5 million patients a year which doesn’t account for when you get driven by whomever to see your doctor, right? So, we get more customers from a medical facility in a mall than we will from the retailers.

SQ: Now that retailers and developers are being more open-minded about what can be part of a shopping center, you can be a lot more creative in leasing.

PREIT is now doing exactly what you're talking about; building work, live, play, and stay communities. We have seen it done in some other places, though not quite to the extent that you are doing it - Santana Row and Caruso's project, Americana at Brand, where they included a residential component.

JC: Great examples. Not to give props to a competitor but Federal did an excellent job there. It started to speak to the ability to add residential, office, dining, and entertainment. As I recall, most of Santana Row, other than the residential, is in office, dining, and entertainment.

Linda Johansen-James (LJJ): I read you are doing the same at Springfield Town Center, right?

JC: Yes, this is a great example. We added a ton of restaurants at Springfield Town Center. Combined, they do close to a hundred million in sales. We also have a Lego Discovery Center under constructionthe first one in the DC market.

We have a Dave & Busters and we're building about 400 apartments and 200 hotel rooms. It's a vast common area, about 700,000 square feet, and it has always been a struggle to keep that occupied. By bringing Lego and restaurants this year we'll hit 96% occupancy for the first time in that property’s history. Again, it's not because we've gone to find traditional mall retailers. It is not a question of searching farther or harder. They just don’t exist like they once did.

It's even true in smaller markets. We have Capital City Mall in Harrisburg, Pennsylvania. At one time there were three malls in the Harrisburg market. Now, one is closed and the other is under demolition. We've got the only Macy's in a 50-mile radius, the only Dave & Busters, and the only group of retailers that you would traditionally find in a mall. We've seen sales in that property increase by $100 a foot since 2019.

I call it last mall standing. The market was over-malled. It’s a sort of natural selection that is occurring. Retailers are realizing they don’t really need to be in every mall in any given market.

They have online shopping, Buy Online/PickUp in Store, Curbside Pick-Up, etc. What is happening is the weaker malls are considering what else can be done with the property. They cease to become a traditional mall. It's a 0winner-take-all environment right now.

SQ: Definitely. That is part of your sustainability ethos with PREIT, isn't it? Building communities around the shopping center that already exists rather than adding the shopping center after the fact.

JC: Yes. When you think about it, mixed-use is smart growth. You're reducing those trips to the property. You are reducing the carbon footprint. You are doing the kinds of things that from a sustainability perspective are much better for the environment. A few of our properties, Cherry Hill, Moorestown, Dartmouth, have solar panels covering acres and acres of roofs. Not only are we using less electricity, but we are also adding electricity to the grid when we're down. Again, it's an opportunity. On new projects, we're doing white roofs and, in some cases, green roofs.

Retail was the last group that really gave a hoot about sustainability. We were trying to put food on the table, right? Maslow's hierarchy of needs – We’ll work on sustainability after we get a house, we get food and so on and so forth. Today, however, it has really come into the forefront of development in retail. In fact, right now we’re exploring putting a display at our entrances to show the customer how much electricity we're saving, how much we’re giving back to the grid, because the customer cares about that. They used to care about price and value, level of merchandise, brand names, etc. Now people are becoming sensitized to things like climate change, and we think it's important for us to begin to communicate what we are doing to the customer.

SQ: Right. Not only do you care, but we also care and we're actively doing something about it.

LJJ: I love that. I read an article a few weeks ago about the clothing industry and how much carbon they're emitting in the manufacturing process and how they're trying to get away from fast fashion because it’s filling up landfills. In the past, it was important to buy something for $5 at a fast fashion retailer and throw it away. Now they are saying, the landfills are emitting all this carbon detrimental to the environment. I love that you're thinking about showing how you're really trying to make a difference in the communities where you're located. Sustainability, as you know, is one of the top retail challenges. How do we really affect what is happening in our communities is a central question. You are already starting to do that, and I am thrilled! My generation did not understand sustainability and really didn’t think about it at the time. I'm sorry to say it but it wasn't really a focus for me, thought it should have been. Now, my clients are asking what developers are doing to help with all the waste from renovations/tenant upgrades etc. It's nice to hear that it is top of mind for PREIT.

JC: I agree. I can remember many years ago, I would be shaving, and have the water running constantly. My little daughter would tell me to turn the water off. What? Why am I going to do that? Well, you're not using it. Turn the water off. Our generation was not sensitized. But our kids are quite the opposite.

LJJ: I am telling you, my grandchildren are always reminding me we're running out of water here in Las Vegas, so we all must do our part to conserve water.

SQ: Is PREIT doing anything onsite to help retailers meet their sustainability goals?

JC: One of the things we have been doing is sustainable demolition. For example, during the development of Fashion District, which is a 400+ million-dollar project, we sourceseparated all the demolition debris and brought it to places where it could be reused.

It was a sustainable demolition as opposed to tearing it apart and just dumping it in a landfill. We took it to where they could reuse the steel, the wood, etc. That's something I think we all could do, because there's so much, even in home renovations. It costs a little more, but we found it worthwhile.

LJJ: Would that be something developers could do in their briefings with retailers when they come in to do their renovation and construction on their spaces? Show them how to be sustainable as they're tearing down and rebuilding? I'm curious as to how you see that. I have three clients now that are opening seven spaces in the United States, but eventually globally. I would love to be able to brief them on how to do their renovations in a sustainable way.

JC: We would be happy to share details on what we’ve done.

LJJ: Thank you. Congratulations. That's a big piece.

JC: Right? That's the biggest thing we do. We are constantly tearing down, rebuilding, tearing down. In our business, you make a major capital investment every seven years or so. Additionally, tenants are rolling over all the time - we're rolling over about fifty percent of our tenants a year. All of that really contributes to being able to reuse those materials.

Urban projects are an entirely different discussion. Philadelphia has less than fifty percent of its workforce back in the office. New York has less. If you look around the country, the cities that have the highest percentage returning to the office, getting closer to seventy and eighty percent are the smaller cities. We've still got a lot of work to do in terms of getting the workforce back. For example, the transportation station under Fashion District used to deliver twenty-two million commuters (about the population of New York) a year in and out of that station. That number today is probably seven million. We have seen that kind of drop off. Part of it is people who don’t want to go back to work in the office. Part of it is people who do go back to work may prefer to drive.

SQ: To jump to another subject, PREIT has programs designed to help minority entrepreneurs get a step up. Can you tell me a little bit about that and what it means to business?

JC: I think we've been at the forefront of supporting black and brown owned businesses. For instance, the number of our minority owned businesses increased seventeen percent last year. We have nineteen malls with one hundred-forty black and brown owned businesses, which is a substantial number.

There is obviously a business benefit from diversity. I used to joke with people that malls are so homogenized that if I blindfolded you and took you to Des Moines, Iowa and dropped you in a mall, you would think you were in your neighborhood mall. Same tenants, similar architecture. To a certain extent, it really serves to differentiate the property and brings in a mix of retailers that allow customers to say, oh geez, I want to come to this mall, not that one because this mall has X, Y and Z and the other one does not. So, we believe the move to diversity is obviously beneficial from pure diversity, but it is also beneficial in terms of the shopping experience you deliver to the customer.

We have really tried to go the extra yard. We had a food court tenant at Willow Grove who, for whatever reason, got himself in trouble financially. He became homeless and had to close the store. We provided the capital to allow him to reopen the store, help him pay his rent and get back on his feet. He is now operating the business again. He has a phenomenal fried chicken operation, and it took going that extra yard to make it happen. We're talking about a couple thousand bucks, right? The result is we have this great interesting unique food use in the property right now that we wouldn't have had but for that.

LJJ: It would be great if more developers would take what happens to their tenants personally, Joe, which is what you just told us. You and your team took it personally and you helped this man by giving him a couple thousand dollars. What is that in the grand scheme of things? Nothing. I just think it's an exceptional story, it gives me goosebumps.

JC: There but for the grace of God go I.

LJJ: Exactly. I try and live by that as well. I think it’s a back east saying because my parents used to say it as well.

JC: I grew up in a 17-foot-wide row house with three bedrooms and one bath. My older brother got to brush his teeth in the sink. I got to brush my teeth in the tub. I appreciate what I have every moment.

So, when I think about somebody like that who just needs a break, just needs an opportunity, I want to do what I can. So there for the grace of God, go I. Yeah.

LJJ: That really tells the story of a CEO who leads by example and cares about the people in his shopping center. That's a big story in my book so thank you for sharing and thank you for leading by example.

SQ: Let's talk about the turnaround of PREIT. From the restructuring to emerging in record time. Typically, that is going to be challenging anyway. But now you throw in all the other things going on - COVID, etc.

JC: We thought we had one hundred percent of our bank signing off on an amend and extend of our credit facility.

At the 12th hour, one of the banks sold five percent of the debt at a discount to a hedge fund, and that five percent forced us into a filing. We had ninety-five percent of our banks agreeing to an extension. Unfortunately, the agreement required one hundred percent alignment, and we did not have it. We did what is called a pre-packaged filing. We made a deal with that five percent debt holder, and we're