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BANK TO FORECLOSE ON OWNER OF PRIME OUTLETS
STORES REMAIN OPEN AT NIAGARA COUNTY SITE

The owners of Prime Outlets USA have fallen behind on their mortgage, and the bank has started to foreclose. A similar fate has befallen other outlet centers owned by the same group.

Prime Outlets on Military Road in the Town of Niagara is now under the management of a court-appointed receiver. However, shoppers won't notice any differences. The stores remain open and all the center's employees are still on the payroll, said receiver Dennis M. Penman, executive vice president of M.J. Peterson Development Corp., which will manage the property while the foreclosure proceeds through the courts.

If the property is eventually sold to another developer, the new owner may try to boost the profitability of the outlet center by changing the tenant mix at the mall.

At 535,000 square feet, Prime Outlets is one of the largest shopping centers in the region. It is owned by Prime Retail of Baltimore, which was acquired by an affiliate of the Lightstone Group of Lakewood, N.J., in November. At the time, Prime Retail owned 36 shopping centers.

The Lightstone Group would not answer any questions, but did issue a statement under Prime Retail's name that said, "We have a positive relationship with the lender and are working to resolve the situation amicably."

GMAC Mortgage Corp., which initiated the foreclosure, said the payments on the $63 million mortgage on Prime Outlets stopped coming in January.

"Basically, they said the cash flow was insufficient to service the debt," said John Kipping, vice president at GMAC. "We'd love to continue to sign up tenants and operate it during the course of the foreclosure. Then we'll make a decision whether to sell it to a developer immediately, or hold it, develop it and then sell it."

The 150 stores at Prime Outlets have about $7 million in sales each month, Penman said. Sales in the second-quarter rose 10 percent compared with the same time last year. The center is about 82 percent full.

The outlet center is generating about $191 in sales per occupied square foot.

"That's not great," said Linda Humphers, editor in chief of Value Retail News, an industry trade publication. "It was known in the industry as a very poor performer."

An average outlet center would have $275 to $300 in sales per square foot. Top performers have close to $400, she said.

Earlier this year, Prime Retail stopped paying the mortgages on outlet centers in Bend, Ore.; Sedona, Ariz.; and Post Falls, Idaho, and turned the properties over to GMAC, Kipping said. Value Retail News reported that a lender foreclosed on Prime Retail's outlet center in Perryville, Md., earlier this year.

"I'm getting the impression that Lightstone's strategy is to not hang onto poor performers," Humphers said.

Prime Outlets does have some assets, such as a decent mix of stores, Humphers said. The outlet center is also adjacent to a proposed shopping center that would include a Wal-Mart supercenter, Sam's Club and several other big box stores.

Benderson Development Co. opened Prime Outlets in 1982 on what was the site of a former King's Department store. Benderson sold Prime Outlets to Prime Retail in 1997 for $89 million.

There's the possibility that the foreclosure proceeding could stop if Lightstone reaches an agreement with GMAC. If the foreclosure proceeds, Prime Outlets may eventually change hands, as so many of the region's other malls have recently done.

The Eastern Hills Mall in Clarence, which was valued at $42 million five years ago, sold last year for $17 million to Mountain Development Corp. of New Jersey.

The Clarence Mall, a strip plaza at Main Street and Transit Road, sold for $7.5 million to the Benchmark Group of Amherst.

The Summit Park Mall, which was once worth $32 million, was bought by three local investors earlier this year for $5 million.

The McKinley Mall in the Town of Hamburg was bought last year by Stoltz Management of Bala Cynwyd, Pa., for $49 million.

e-mail: lhaarlander@buffnews.com

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