Gallery renovation sails through last city straits

The plan for a $325 million remake of the sagging Gallery mall sailed through City Council on Thursday, and the package of enabling legislation was quickly signed by Mayor Nutter.

Now all they have to do is build it.

"This is, quite honestly, a once-in-a-generation investment in the city of Philadelphia," Nutter said, adding that the project would help "restore Market East as Philadelphia's Main Street."

Demolition is expected to start in August, with the mall closing in two phases. Two years from now, officials said, the mall will emerge as the bright and airy Fashion Outlets of Philadelphia, home to discount high-end brands and destination restaurants.

"It's a great day for the city," said Councilman Mark Squilla, sponsor of the bills. "This was one of the most complex procedures I've been involved with."

The Gallery, now almost empty, will be remodeled top-to-bottom by the Pennsylvania Real Estate Investment Trust and the California-based Macerich Co. City officials see the mall as the main and most complicated piece of a hoped-for Market East revival.

Once an avenue of grand department stores, the eight-block corridor between City Hall and Independence Mall has grown gritty and grim.

The Gallery renovation marks one of the most expensive projects ever undertaken on Market East, where new development is beginning to take root.

"This has been a 12-year effort," said Joseph Coradino, chief executive officer of PREIT, who noted the firm bought its first piece of Gallery property in 2003. "Today is really a defining day in Philadelphia's future."

The Gallery will close between Eighth and 10th Streets by August, temporarily ending the mall's traditional role as a shortcut for thousands of commuters and pedestrians. Next year the construction zone will extend to 11th Street.

The Council vote came on the last day of the session. Only one person spoke about the project during the public-comment portion - Irma Lopez Salter, who ran the Perfect Foto kiosk at the mall.

She and other kiosk vendors, booted in late 2014 and early 2015 as the mall was drained of stores, were given first dibs on spots in the Fashion Outlets as a compromise.

"I look forward to cutting that ribbon," she said.

PREIT spent $250 million to buy the land, and the $325 million remake will bring the total cost to $575 million.

PREIT and Macerich won't pay all the new costs - they get a big tax break from the city. That part of the legislation passed, 15-0, on Thursday.

Backers say the tax break is fair because the city failed to make required maintenance and improvement payments to the mall and because the investment will bring new retail properties, jobs, and revenue to the city.

An economic analysis by City Controller Alan Butkovitz showed the project would generate as much as $194 million in new tax revenue over 20 years.

Under the legislation, PREIT and Macerich would borrow $55 million for development costs. They would pay that loan back with new, incremental tax revenue - taxes above the current amounts generated by the property - and be reimbursed by the city and School District.

City officials estimate the developers would receive $127.5 million of incremental tax revenue over 20 years to service that debt.