Massive commercial real estate company could lose New York shopping mall, one of largest in U.S.

Syracuse, N.Y. — Just when it looked like things couldn’t get worse for Destiny USA’s owner, they have.

As it struggles to avoid foreclosure on its giant Syracuse mall, Pyramid Management Group just lost control of a nearly identical mall in the New York City area and may soon lose ownership of it.

Judge Francis A. Kahn III of state Supreme Court in New York County ordered the appointment of a receiver Aug. 12 to take control of Palisades Center in West Nyack.

That stripped Pyramid from managing and collecting money from the Rockland County mall. And it means Pyramid is one step closer to losing the mall altogether.

With 2.2 million square feet of leasable space, Palisades is only slightly smaller than Destiny USA, the largest mall in New York.

Like Destiny, Palisades is worth a fraction of what it was just a few years ago. And like Destiny, the downstate mall is loaded with debt that Pyramid is having trouble paying off.

Pyramid, the development company founded by the late Robert Congel, is in default on a $418.5 million mortgage on Palisades, and a trust representing lenders filed to foreclose on the mall last year. The trust wants to sell the mall to collect at least some of what it is owed.

Pyramid CEO Stephen Congel, the company founder’s son, said in a statement to syracuse.com | The Post-Standard the company is hoping to work out a deal with lenders that will allow it to retain Palisades.

“We have made multiple proposals to the lender on Palisades Center in an effort to resolve the issue,” Congel said. “We are working collaboratively with the court and receiver. It is our goal to reach a resolution that keeps Pyramid the owner and manager of Palisades Center.”

For now, though, the court-appointed receiver replaces Syracuse-based Pyramid as Palisades’ operator while the foreclosure proceeding moves along. Under the judge’s order, the receiver will manage the mall, collect rents from its tenants and hold onto any revenue, after management and maintenance costs are paid, until the center can be sold to satisfy its debts.

The move comes as Pyramid is facing a potential foreclosure action on Destiny USA, Onondaga County’s last remaining mall.

Pyramid’s loss of control of Palisades gives a preview of what could happen with its Syracuse mall. It’s possible Destiny USA’s lenders could do the same thing: foreclose and seek to sell the mall to someone else.

Kroll Bond Rating Agency reported last month that a special servicer overseeing an overdue $430 million mortgage on Destiny USA has terminated a forbearance agreement with Pyramid and is planning “enforcement action” against the mall.

Pyramid CEO Stephen Congel responded by saying the company is attempting to reach an agreement with the special servicer to modify the loan.

What happened downstate

Pyramid entities borrowed nearly $419 million on Palisades from JPMorgan Chase and Barclays in 2016, a loan that was quickly sold to investors as commercial mortgage-backed securities.

The mortgage was set to mature in April 2021, but Pyramid was unable to pay it off.

Under a “standstill” agreement with lenders, the loan was extended to 2022. When the new maturity date came due, Pyramid again failed to pay up.

In February of last year, Wilmington Trust, acting as a trustee for holders of the commercial mortgage-backed securities, filed to foreclose on Palisades. Under a foreclosure, a lender takes possession of a property and sells it to collect what it is owed.

The foreclosure action was taken against Pyramid affiliates EklecCo NewCo LLC, Queens Comic’s NewCo LLC, Riesling Associates, Three J’s Family Trust and CS Hudson Inc.

Pyramid fought the appointment of a receiver. It said the move was unnecessary because Wilmington has had control over all rents since June 2020 under a cash management agreement that was part of the loan’s origination in April 2016.

The agreement was even modified in 2021 to unambiguously provide that all funds are controlled by the lender and Pyramid only receives what the lender approves for operating and capital expenses and other costs, Pyramid said.

In addition, the mall company said activity and revenues at Palisades have steadily improved since the coronavirus pandemic.

“Pyramid has managed the mall since it opened its doors in 1998, and to suggest that another management company is better equipped to operate the mall is offensive particularly considering that Pyramid successfully guided the mall through the Covid-19 pandemic, which was one of the greatest challenges to hit the retail sector in recent history,” the company said.

But in his order, Judge Kahn said the mall’s mortgage provided for the appointment of a receiver if Pyramid defaulted on the loan. And he said there was no doubt Pyramid has defaulted on the mortgage.

“Notably, defendants have not demonstrated that issues exist as to the validity of the mortgage or whether a payment default has in fact occurred,” the judge said.

Destiny’s more complicated finances

Palisades and Destiny USA are in different parts of the state, but they have a lot in common.

Opened in 1998 about 25 miles from New York City, Palisades has a Ferris wheel, an ice rink and a 21-screen AMC movie megaplex.

Destiny opened eight years earlier on the southern shore of Onondaga Lake and features an antique carousel and 17 Regal movie screens.

Like Destiny USA, Palisades has suffered from the loss of major stores amid the decline of brick-and-mortar retailing. Among the anchors both malls have lost in recent years: J.C. Penney and Lord & Taylor.

With the losses, the malls have lost much of their market value, which means lenders would be unlikely to get all they are owed if the malls are sold.

Palisades was appraised at $881 million when its mortgage was issued in 2016. But it was appraised at $209 million a year ago.

Destiny was appraised at $710 million when its mortgage was issued in 2014, but Kroll estimates the mall’s current value at $65.3 million — barely 9% of what it was worth a decade ago.

Destiny USA’s mortgage is similar to the one on Palisades, but the Syracuse mall’s financing picture is a bit more complicated.

Destiny’s mortgage was originally issued by JP Morgan in 2014 in two parts:

• A $300 million loan secured by a mortgage on 1.2 million square feet of the 1.5 million-square-foot original portion of the mall, opened in 1990 as the Carousel Center.
• A $130 million loan secured by a mortgage on the 874,200-square-foot expansion that opened in 2012, when the mall was renamed Destiny USA.

The loans originally had five-year terms, with a maturity date in 2019, but were extended after Pyramid was unable to pay them off. A special servicer refused to extend the loans further this summer after Pyramid said it was not in a position to make a required $38.9 million payment to lower the balance.

In addition, Pyramid owes $259 million on bonds issued by the Syracuse Industrial Development Agency to help finance the 2012 expansion. The bonds are secured by a lien on the original portion of the mall.

It has kept current on its bond payments. But the bonds could complicate a foreclosure by Destiny’s mortgage lenders.

What’s next for both malls?

Judge Kahn will have to rule on Wilmington Trust’s request to force a sale of Palisades. But judging from his appointment of a receiver to take control of the mall, it certainly isn’t looking good for Pyramid’s hopes of holding on to the mall.

If it is sold, that does not mean Palisades will close. It would simply operate under a different owner.

Destiny’s mortgage lenders have not moved yet to foreclose on the mall, but they could do so at any time. As is the case with Palisades, a foreclosure would not mean the mall would shut its doors. It would just be operated by a different owner.

Of course, Pyramid could still negotiate some type of agreement with lenders to extend or modify the debt on both malls. If it can manage to do that, Destiny USA and Palisades could remain in Pyramid’s hands — for now.