'Find more tenants': Creditor continuing Galleria operation, some stores extend leases

Oct. 9—In the opinion of Penn State Smeal College of Business retail studies professor Fred Hurvitz, it's a safe bet that no major changes are in store for The Johnstown Galleria in Richland Township.

The Galleria's mortgage creditor, the U.S. Bank National Association, officially took the mall back through bidding at a sheriff's sale last month.

Since then, its attorneys have kept plans close to the vest.

"It was probably a way for them to take control of the property, and they'll probably try to find more tenants if at all possible," Hurvitz said.

The creditor has already been operating the mall through a court-appointed receiver over the past 20 months since the mall entered the foreclosure process with former owner ADAR Johnstown, LLC.

The creditor's own purchase of the mall through the sheriff's sale means it could continue leasing spaces and have more revenue coming in against the $15 million mortgage debt that's owed, Hurvitz said.

Several tenants — including American Eagle Outfitters and the Galleria's only food court tenant, Rosalinda's Express — have continued to operate in the Galleria beyond the expiration dates of their 2021 leases, signaling that they have apparently signed new rental agreements in the past year.

'Long-term leases'

In a financial report included in the mall's foreclosure case file, 10 lease expirations were scheduled for 2021. All of those expirations have passed, and seven of those tenants are still there — including Spencer's Gifts, Aeropostale, Books-A-Million and Maurice's as well as American Eagle and Rosalinda's Express.

Individual stores wouldn't confirm the terms of new leases they may have agreed to, however. It's possible they may be years-long again, or they may be month to month.

Hogue's Fun Factory, a children's entertainment venue, let its lease expire in June and moved out of the mall. Owner Chris Hogue said management was looking for long-term commitments.

"They were still trying to sign long-term leases when we were there," Hogue said. "We couldn't do that and they didn't want to do a short-term thing, so we decided not to do that."

Victoria's Secret also closed well in advance of its lease expiration scheduled for Jan. 1, 2021. An authorized Verizon Wireless dealer also moved out this year, but another dealer moved into a location on Galleria Drive beside Staples.

Tenants' lease types and expiration dates were included in a financial report, dated July 2020, in the Galleria's foreclosure case file at the Cambria County Courthouse.

Saddled with mortgage debt, the mall's previous owner, ADAR, entered into the foreclosure process in late 2019 with U.S. Bank National Association.

The mall has been managed by Spinoso Real Estate Group, acting as court-appointed receiver for U.S. Bank National, as the property was prepared for a sheriff's sale.

The sheriff sale originally scheduled for December 2020 was postponed three times for "due diligence with respect to the property," court documents in the file show.

The sale commenced Sept. 10, well beyond all of the scheduled 2021 lease expirations, which had apparently been handled.

J.C. Penney's plans

A few more tenant leases at the Galleria are set to expire in 2022; the biggest tenant slated for a new lease is anchor store J.C. Penney, the financial report shows.

The company has plans to stay, stating in an email this week that it intends to continue operating at the Galleria.

Fuji Japanese Steakhouse and Bath & Body Works also have leases expiring in the next year. Fuji owners declined to comment, Bath & Body Works did not respond to The Tribune-Democrat's questions about their plans.

There are also month-to-month renters — including Champs Sports, 4-Ever Nails, Claire's Boutique, GNC, Hot Topic and the Navy Career Center.

And there are tenants with existing leases that still have years on them. Shoe Dept. Encore's lease runs through 2024. Italian Oven's lease runs through 2025, and so does Aunt Annie's Pretzels. Jake's Pub has a lease through 2028.

From July 2019 to July 2020, the mall brought in $1.4 million in revenue and incurred $1.3 million in expenses, for net operating income of $188,000, according to Spinoso's financial report. That snapshot reflects economic hardship caused by the COVID-19 pandemic.

The mall is a little more than 57% occupied, including anchor stores, Spinoso's report shows. The report lists the mall's primary competition as the Richland Town Center, a shopping plaza 2.4 miles north of the Galleria.

The two-story enclosed shopping mall has also been weakened by a lack of anchor stores and the vacancy of Kay Jewelers, Children's Place and Victoria's Secret due to the COVID-19 pandemic, the report said.

While rumors have circulated that the Galleria may someday be bought as the site for a hospital or other type of organization, Hurvitz doesn't see that happening without at least a complete demolition of the mall.

"I know the makeup of that mall," he said. "I don't know that it's conducive to a lot of that stuff ... That's probably why they are trying to do what they are doing — trying to find more tenants to draw whatever revenue they can."

The Galleria opened in 1992.

"It used to be a pretty vital mall," Hurvitz said.

Malls across the country are in similar straits, he said.

Hurvitz said he foresees the Galleria maybe adding some new tenants as the U.S. Bank National Association tries to make revenue from leases, but major changes are unlikely, in his opinion.

"They probably can attract some businesses to go in there, but it will never — I shouldn't say never — but it doesn't appear they will be able to fill up much more," he said.

"They are probably trying to make the best situation they can, bringing revenue in against the debt on the property. That's just my opinion."

Russ O'Reilly is a reporter for The Tribune-Democrat. Follow him on Twitter @RussellOReilly.