The majority owner of Pearlridge Center in Aiea and more than 100 shopping centers has filed for bankruptcy reorganization.

However, the 1.3 million-square-foot Aiea center that is anchored by Macy’s, Bed Bath & Beyond and Ross Dress For Less is not affected because it is not wholly owned by Washington Prime Group.

The Columbus, Ohio-based mall owner filed for Chapter 11 late Sunday after struggling for more than a year with a pandemic that crushed mall revenue and traffic. Washington Prime Group acquired 51% of Pearlridge Center in 2015.

Pearlridge Center General Manager David Cianelli said it’s business as usual at the center for its shoppers, tenants, community partners, vendors and contractors, and that they will see no change.

“Certain subsidiaries, including Washington Prime Group’s joint ventures and the majority of the Company’s special purpose entities holding properties that secure mortgage loans, will not be debtors in the Chapter 11 case,” Cianelli said in a statement. “Pearlridge Center is a non-debtor and will not be impacted by the Company’s Chapter 11 financial restructuring.”

Cianelli said there’s a lot of “great things” happening at the center with several new businesses opening recently or soon to open for business, including Tanaka Ramen, Hot Dog on a Stick, Sweet Okole, Bomb Chicken, Winsor Fashions, Hawaii Hot Pot Shabu Shabu and Mango Mango.

Washington Prime said it has reached agreements with creditors who hold 73% of the company’s secured debt. The company said restructuring its debt would allow it to “strengthen its business and operations going forward.”

“The COVID-19 pandemic has created significant challenges for many companies, including Washington Prime Group, making a Chapter 11 filing necessary to reduce the company’s outstanding indebtedness,” the company said in a news release.

Washington Prime noted that it had received $100 million in financing from its creditors to support daily operations at its centers, which are concentrated in the Midwest, East Coast and Florida.

“Washington Prime Group’s guests, retailers and business partners can expect business as usual at all of the company’s retail town centers throughout the proceedings,” the company said.

“The company’s financial restructuring will enable WPG to right size its balance sheet and position the company for success going forward,” said Washington Prime CEO Lou Conforti in a news release.

“During the financial restructuring, we will continue to work toward maximizing the value of our assets and our operating infrastructure. The company expects operations to continue in the ordinary course for the benefit of our guests, tenants, vendors, stakeholders and colleagues.”

In its bankruptcy filing in Texas, Washington Prime listed assets of $4.03 billion and debts of $3.47 billion.

The company said its restructuring agreement with its creditors, led by its largest, SVPGlobal, allows it to deleverage its balance sheet by $950 million. In addition, Washington Prime Group and SVPGlobal anticipate an equity offering of $325 million as part of the restructuring.

Bankruptcy may be the best step forward for Washington Prime, especially since it has already reached agreements with most of its creditors, said Shelley E. Kohan, a professor of retail at Syracuse University’s Whitman School of Management.

“Keep in mind that bankruptcies allow businesses the opportunity to restructure for long-term success, so while it’s not great, it may be the best way for the business to move forward,” she said.

Pandemic hurt as shoppers turned to online purchases

Like other mall operators, Washington Prime saw its revenue hammered last year by tenants who were unable to pay full rent or simply closed during the pandemic, as shoppers turned to online instead of in-person purchases. Dozens of retailers filed for Chapter 11 in 2020, many of them mall standards such as Brooks Brothers, J. Crew, Pier 1, Aldo and GNC.

Washington Prime’s rent revenue fell from $633.6 million in 2019 to $506.7 million in 2020, according to company filings.

Malls’ dominant tenants — apparel and accessories stores — in particular suffered in the pandemic because people had little need for new clothes.

“Apparel and accessory sales were down 27% last year,” Kohan said. “Many retailers had no choice but to go to landlords and renegotiate payments, and landlords had little choice but to accept those.”

Washington Prime joins a growing list of shopping center owners to struggle during the pandemic. In November, two companies, CBL Properties and PREIT, which together own 130 shopping centers, filed for Chapter 11. The same month, Simon Property Group indicated that it would allow two malls to fall into bankruptcy.

Problems started before COVID-19

While COVID was brutal to the industry, the problems with indoor malls started long before the pandemic, as shoppers turned online and to outdoor “lifestyle centers.”

The research firm Coresight Research, which tracks the retail industry, estimated in a report last summer that as many as 25% of the approximately 1,000 malls in the U.S. could close within three to five years.

“I do think we’ll see a large percentage of malls closing or reinventing themselves,” Kohan said. “The U.S. is overstored and oversaturated with retail.”

Shopping centers have responded to declines in sales and traffic by trying to diversify their tenant mix, adding activities beyond shopping.

“Millennials and Gen Zs don’t enjoy shopping in malls; they’ve become this flat experience,” Kohan said. “Diversifying the tenant mix, adding the experience factor in there and giving people things to do other than shopping and eating is important.”

Washington Prime’s challenges are complicated by a diverse portfolio of properties that includes top-tier properties such as Polaris, along with dozens of older properties in smaller markets.

“We’ve seen declines in traffic in B and C malls for years,” Kohan said, while reiterating that bankruptcy could be a positive for Washington Prime.

“I think it’s very prudent of them,” she said. “It might include losing some physical spaces but in the long term, this might be a good thing.”

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Star-Advertiser reporter Dave Segal contributed to this story.