Destiny USA’s future: What’s next for troubled mall after $300 million default?

Syracuse, N.Y. – When a homeowner defaults on their mortgage, it’s just a matter of time before the bank takes their home. But when a gigantic mall defaults on its mortgage, it’s sometimes a different story.

Syracuse’s Destiny USA, the biggest shopping mall in New York and one of the largest in the nation, defaulted on a $300 million mortgage last June, its latest financial statements revealed this week.

But does that mean the mall’s lender will step in and seize the huge shopping center from its owner, Syracuse-based Pyramid Cos.? And if it does, will shoppers notice any difference?

The answer to both is, not necessarily.

Pyramid is negotiating with the lender, Wilmington Trust, for an extension of the mortgage to Dec. 6 of this year. As part of the deal the parties are working on, Pyramid would be required to deposit $2 million into a cash reserve account and pay the lender a $1.1 million fee in exchange for the extension.

While the lender could foreclose on Pyramid at any time, it has reasons not to.

First, in the age of Amazon, no one wants a mall these days, and that includes lenders. Malls have closed by the thousands since their heyday in the 1980s and 1990s, and the apocalypse shows no sign of slowing down.

“Lenders don’t want to own it,” said Burt P. Flickinger III, managing director of Strategic Resource Group, a consumer industry consulting firm.

Second, the $300 million mortgage Destiny USA defaulted on is not its only debt.

Pyramid also owes a $265 million balance on bonds issued by the Syracuse Industrial Development Agency for an expansion project completed in 2012 — a situation that makes foreclosure less appealing to the lenders. That’s because in any sale of Destiny, the bondholders, and not the lenders, would be first in line to recoup any money.

For now, Pyramid is continuing to make its bond payments, Eric Ennis, deputy commissioner of Neighborhood & Business Development for the city, said in a statement to syracuse.com | The Post-Standard.

“Our understanding is that payments on the bonds that were issued by the Syracuse Industrial Development Agency continue to be paid timely,” he said.

The city is not a party to the negotiations between Pyramid and its mortgage lender, but “we remain interested in seeing all parties work together in order to reach a positive outcome,” he added.

And not only do the bonds rank higher in the debt pecking order than the mortgage loans, it’s very possible there would be no money left for the mortgage lender after the bondholders are paid, given the declining value of the mall.

Nevertheless, lenders foreclosed on two other Pyramid malls last year. Pyramid lost its Hampshire Mall in Hadley, Massachusetts, last summer, then its Palisades Center in West Nyack after similar loan defaults. So it can happen.

Which begs another question: Would shoppers notice if the lender forecloses on Destiny USA? Maybe not.

A new management company would likely come in to operate the mall until the shopping center is sold to a new owner. That’s what happened when Pyramid lost the Hampshire Mall and the Palisades Center.

Destiny USA would not close. While it has lost major anchors like At Home, Lord & Taylor, JCPenney, Best Buy, Bon-Ton and Sports Authority, it still has around 300 tenants, mostly smaller in-line stores, restaurants and entertainment venues.

Pyramid has not responded to a request from syracuse.com | The Post-Standard for comment this week. In January, it issued a statement announcing several upcoming additions to its tenant list, including an indoor 40,000-square-foot pickleball facility and a 14,000-square-foot virtual reality concept venue.

Flickinger said the mall will need to attract more tenants like that to overcome the challenges it is facing. Medical offices, housing, indoor athletic facilities and a center that hosts video gaming tournaments are some of the developments that could help fill vacant space, he said.

“They would bring people into the mall,” he said.

READ MORE: After losing 2 malls, Destiny USA’s owner struggles to hold onto other shopping centers

Rick Moriarty covers business news and consumer issues. Got a tip, comment or story idea? Contact him anytime: Email | X | Facebook | 315-470-3148