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PhillyDeals: Details of Gallery renovation still under wraps

At their quarterly meeting with the boss last week, analysts who cover Pennsylvania Real Estate Investment Trust pressed for details about rebuilding PREIT's Gallery shopping mall in Center City.

At their quarterly meeting with the boss last week, analysts who cover Pennsylvania Real Estate Investment Trust pressed for details about rebuilding PREIT's Gallery shopping mall in Center City.

"Did the Philadelphia City Council consider the public financing for the project in December, or is that still waiting to occur?" asked Banc of America Merrill Lynch Securities analyst Craig Richard Schmidt.

"We're navigating the political winds in Philadelphia," PREIT chief executive Joseph Coradino said. He was still "highly optimistic" there would soon be a city financial package to make the new Gallery profitable.

"We have yet to see a real plan," pressed analyst Ki Bin Kim of SunTrust Robinson Humphrey.

The plan "is, to a certain extent, subject to the transaction we end up concluding with the City of Philadelphia," Coradino said. "We have been a little quiet about that until we get that resolved."

PREIT chief financial officer Robert F. McCadden fielded questions about "de-tenanting" and "demolition": closing Gallery kiosks and stores and making the buildings more attractive.

McCadden said the Gallery brought in "more than $10 million" in yearly net operating income before it started shutting stores last year, but that will be "reduced by almost $6 million by deleasing" before new tenants arrive.

"Our investors are supportive of the project," PREIT spokeswoman Heather Crowell told me later by e-mail. She promised "an exciting redevelopment."

I asked City Councilman Mark Squilla, in whose district the Gallery sits, if the delay is really Council's fault. "It's complicated," Squilla said. The city owns part of the Gallery. PREIT and its investment partner, Macerich Co., want to buy the city's piece.

So PREIT and Macerich will pay the city? Maybe not. "We didn't do a very good job of maintenance," Squilla told me. PREIT expects to be paid for what the city didn't do for the Gallery over the years.

So which side pays which? "Our lawyers are working on it with their lawyers," Squilla said.

Did they get an appraisal? Deputy Mayor Alan Greenberger put it candidly: "There's been an attempt to establish what the value is, as a way of crafting the story about why there's going to be public financing."

It's like the old too-helpful-accountant joke: How much do you want it to be?

The city is also negotiating a Tax Increment Financing District, which would allow PREIT to apply what would otherwise be future property-tax increases to Gallery upgrades. "There is a presumption" this will result in more jobs and higher wage-tax collections, Greenberger told me. (Investor Brook Lenfest's W and Element Hotels at 15th and Chestnut, where work started last week, are also getting a TIF.)

Plus, Pennsylvania has promised $13.5 million in matching Redevelopment Assistance Capital Program funds for the Gallery.

With enough taxpayer support, you might call this the People's Gallery. But don't expect the owners or stores there to be giving much away.

215-854-5194

@PhillyJoeD

www.inquirer.com/phillydeals