“American Eagle believed it was leasing a prime real retail space with a street-front entrance in Downtown San Francisco from one of the most established and reputable retail landlords in the country,” the complaint reads.
But the neglect of Westfield San Francisco Centre left “American Eagle and its employees to suffer and respond to gun violence, physical assaults, burglaries, and robberies,” it adds. “This is not the store American Eagle paid millions of dollars for, or the store that Westfield promised.”
The company said it is seeking monetary damages consistent with breach of contract. The mall operator did not immediately respond to a request for comment from The Washington Post on Thursday. An American Eagle spokesman said the company does not comment on ongoing litigation.
The dispute comes against a backdrop of commercial real estate struggles in San Francisco and elsewhere.
Commercial landlords have seen their holdings plunge in value as higher interest rates and a pullback among stressed regional banks have made it harder to recapitalize struggling assets. At the same time, cash-strapped consumers are cutting back on nonessential goods such as branded clothing, prompting retailers to close stores or renegotiate leases amid declining foot traffic. Retailers have also struggled to control theft, with highly publicized “smash and grab” thefts hitting malls in particular.
A June report from Moody’s Investors Service concluded that “tightening financial conditions, the rising cost of capital and declining property valuations” would increase credit risks for real estate companies over the following 12 to 18 months. The office and retail sectors will face the greatest risk, Moody’s concluded, as remote work and diminished consumer spending hurt downtowns.
Office buildings and “lower-quality retail centers” face the most severe challenges in the short run, Moody’s wrote.
Unibail, the mall’s corporate owner, is a publicly traded real estate company with roughly 1 billion euros in annual rental income ($1.12 billion) from dozens of shopping centers in the United States and Europe. It has sold several of its Westfield-branded U.S. malls, which should solidify the company’s cash position and reduce its debt, according to the company’s press statements.
According to the complaint, which was first reported by the San Francisco Business Times, Westfield in June expressed its intention to default on a $558 million loan covering the mall, turning management over to a receiver.
The default came after the departure of a number of important tenants, pushing the mall’s vacancy rate to 55 percent, according to occupancy data cited by CoStar News. Earlier this summer, Nordstrom decided to let lapse a long-standing lease on its flagship store, and Century Theater permanently closed its location.
A chief concern is that Westfield has stopped maintaining common areas of the mall in recent years, and “what began as a slow decline in performance has turned to full neglect,” as American Eagle put it. The retailor’s complaint alleges that Westfield asked tenants to communicate emergencies through texts and phone calls but responded to only about half of those requests.
The rise in crime the complaint cites included “stabbings, violent physical and sexual assaults, and robberies.” The company’s employees reported more than 100 “significant security incidents” in the one-year period through May, causing the retailer to permanently close its street-front entrance to keep its staff safe.
The incidents have “poisoned public opinion” against the mall, American Eagle said. “Patrons no longer feel safe because of Westfield’s inaction, and American Eagle is bearing the brunt of Westfield’s abandonment of its obligations.”
