Struggling Westbury mall up for auction

The Source mall is slated to be sold The Source mall is slated to be sold at a foreclosure auction on Aug. 28, according to PropertyShark. (March 28, 2012) Photo Credit: Kevin P. Coughlin

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The Source mall is slated for the auction block, with a foreclosure sale set for Aug. 28, real estate data company PropertyShark reported.

The long-struggling Westbury mall's debt far outweighs its value, according to public records.

The retail center debuted with great fanfare in 1997, but in recent years has struggled as onetime anchor tenant Fortunoff and other major retailers have departed.

Now local real estate experts are speculating about whether the mall even has a future, with some saying it should be torn down and others arguing the right developer could make it a success.

Simon Property Group owns a 25.5 percent stake in the mall, according to Simon's latest annual report. It was unclear from public records who owns the remaining stake in the property. A spokesman said Simon is minority-owner and manager of the mall, but declined to comment further.

The mall was hit hard by the closing of major retailers such as Fortunoff in 2009, said Jeremy Isaacs, a broker with Ripco Real Estate in Jericho.

Nordstrom Rack and Saks Fifth Avenue Off 5th are set to move to the nearby Gallery at Westbury Plaza, which debuts this month.

The center is likely to be 75 percent vacant by next month, and its design is so obsolete that it may need to be demolished, Isaacs said. Retailers want to be in strip centers rather than interior malls, and it was built when big-box retailers demanded larger spaces, he said.

The fact that Simon is allowing the mall to be sold at auction could be a red flag for potential buyers, said Tom Fink, senior vice president at Trepp, which tracks commercial mortgages.

The property's mortgage has been securitized into bonds, which were sold to investors. If bids at the auction are too low, the loan's special servicer could end up taking possession of the property on behalf of bondholders, and possibly selling it later, according to some experts on the Island's retail market.

The auction will not include the vacant Fortunoff store, which has a separate, $46.2 million loan that is also in default, according to Trepp. The store's owners could not be reached Friday.

However, a few brokers said the mall's prime location near the Roosevelt Field mall makes it an attractive buy.

With the "phenomenal" crowd of shoppers coming into the area, a new marketing plan and the right tenant mix could make the difference, said David Pennetta, president of the Commercial Industrial Brokers Society of Long Island. Even so, he said, "I think it's probably going to be a five-year process to get it up and stabilized."

The mall requires "significant renovation," added Bruce Nelson, a vice president with CBRE in Woodbury.

Only a handful of shoppers were at The Source at midday Friday, and the lights were dimmed in the section closest to the Cheesecake Factory. Most stores had their doors closed and windows empty, with the exception of larger chains such as H&M and the Gap Outlet.

"Nowadays, it's very slow because all the other stores are closed," said Hanif Mohammed, manager at Dollar and Deals. "So far, we haven't decided what we're going to do; our lease is up the end of this month."

The mall's value was appraised at $51 million in May, according to Trepp. The outstanding debt is $142 million, according to the legal notice advertising the sale.

With Sarah Tan

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