Mall Struggling, New Look Not Enough

"The operator's biggest gamble at the mall lies ahead. It hopes to raze a mostly-vacant strip center that once housed Kids 'R' Us and S&K Menswear stores. In its place, PREIT would build several sit-down restaurants or a theater, which it hopes will draw as many shoppers as a nationally-known department store.

"If you add together all of the (traffic) volumes of the restaurants, that will be the equivalent of a productive department store," says Ronald Rubin, chief executive of Philadelphia-based PREIT, referring to an approach it has used elsewhere.

Mall operators usually get a small percentage of tenants' sales above a contracted level. Last year, retail sales on a per-square-foot basis in the top 54 U.S. markets declined by their greatest extent since the 1990-91 recession, according to Property & Portfolio Research Inc.

Vacancy rates at U.S. malls climbed to 7.1% in the fourth quarter, the highest rate since real estate research firm Reis Inc. started tracking the figure in 2000. And average rents have started to decline. Wyoming Valley Mall's average base rent was flat last year, after rising 4.4% in 2007."