Destiny USA CMBS Losses Top $350M as Pyramid Buys Debt at 80% Discount

Pyramid Management Group is set to buy back the $430 million mortgage on Destiny USA for less than 20 cents on the dollar, a deal that will produce more than $350 million in losses for CMBS bondholders, according to people familiar with the transaction.

The 2.4-million-square-foot mall in Syracuse, New York, has seen its appraised value drop roughly 75% since the loan was originated. The mortgage sits behind about $235 million of senior PILOT bonds, a structure that left even highly rated CMBS notes exposed when property values collapsed.

The deal could close by the end of August 2026, though Pyramid still needs to fund a deposit, the people said. The developer previously tried to buy the debt for about $70 million in 2025 but failed to secure financing. This year it brought in capital partners to support a lower bid during a sale process run by Newmark.

Destiny USA was designed as a regional destination combining retail, hotels and entertainment – an indoor ropes course, go-kart track and 19-screen movie theater. Syracuse officials backed the project to revive an economy hit by manufacturing declines and population losses. But the mall carried heavy leverage from the start, and as consumer shopping habits shifted, the debt became unsustainable.

The capital structure created an unusual mismatch. The PILOT bonds, issued in 2007, sit ahead of the CMBS debt in repayment priority. When the CMBS was rated in 2014, the highest-quality notes received AAA ratings, even though the structurally senior PILOT bonds carried a lower rating. That ordering meant that when the property lost value, CMBS investors absorbed the first losses.

Bondholder losses are expected to exceed $350 million, which would rank among the largest dollar losses in a CMBS deal, the people said.

The mall's financial distress does not mean the property is empty. Foot traffic rose 2.3% in 2025 to 8.5 million visitors, according to Placer.ai. Still, traffic remained about 20% below 2019 levels. The mall is more than 90% leased. Tenants include Apple, Dick's Sporting Goods, IKEA and Lululemon. Those retailers generated about $530 per square foot in sales in 2025, according to Green Street, which gives the mall a B grade.

That gap matters for investors. A mall can maintain solid occupancy and retailer sales while still producing major losses for lenders and bondholders when its value falls far enough. Major anchors such as J.C. Penney and Best Buy have closed stores. Higher interest rates also made refinancing harder as the Federal Reserve raised borrowing costs.

Pyramid could not repay the mortgage in 2022 and entered forbearance. The developer's ability to buy the debt at a steep discount gives it a much lower basis and more flexibility to reposition the property.

Destiny USA could get a boost from a major economic investment nearby. Micron Technology is building a semiconductor manufacturing complex a few miles north of the mall. The company's broader New York investment could reach $100 billion and create 50,000 jobs, according to New York Gov. Kathy Hochul's administration. That investment could increase demand in the Syracuse area, but its impact on the mall remains uncertain.

Pyramid also continues to expand its retail portfolio. In May 2026, the family-owned developer announced a deal to acquire Providence Place in Rhode Island. The move suggests distressed retail remains part of its growth strategy despite challenges across its existing portfolio.

The Destiny USA deal reflects a broader repricing across older malls, offices and hotels. As property values reset and refinancing becomes more difficult, well-capitalized buyers can acquire distressed debt at steep discounts. For CMBS investors, the mall's fate is a reminder that even properties with strong tenants and improving traffic can produce catastrophic losses when leverage and capital structure are misaligned.