Destiny USA CMBS Debt Faces More Than $350M in Losses

Destiny USA, New York’s largest mall, is on track to deliver one of the biggest dollar losses in the commercial mortgage-backed securities market after its owner agreed to buy back the property’s distressed mortgage at a steep discount, as indicated by Bloomberg.

Pyramid Management Group is expected to pay less than 20 cents on the dollar for the original $430 million mortgage, according to people familiar with the transaction. The deal could close by the end of August 2026, although Pyramid still needs to fund a deposit.

A Syracuse mall built for a different era

Destiny USA was designed as more than a shopping center. The 2.4-million-square-foot complex combines retail, hotels and entertainment, including an indoor ropes course, go-kart track and 19-screen movie theater.

The project took shape over several decades as Syracuse officials sought to strengthen an economy hit by manufacturing declines and population losses. Developers hoped its size would draw shoppers and tourists from across the Northeast and Canada.

But the project also took on heavy debt. As consumer shopping habits changed, that leverage became increasingly difficult to support.

The details

The mortgage totaled $430 million. Bondholder losses are expected to exceed $350 million, which would rank among the largest dollar losses in a CMBS deal.

The capital structure also includes roughly $235 million of PILOT bonds issued in 2007. Pyramid makes payments in lieu of property taxes to support those municipal bonds. They sit ahead of the CMBS debt in the repayment structure.

That created an unusual mismatch when investors bought the CMBS securities. The highest-quality CMBS notes received AAA ratings in 2014, even though the structurally senior PILOT bonds carried a lower rating.

Destiny’s property value has since fallen by roughly three-quarters. 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. In 2025, the developer tried to buy the debt for about $70 million but failed to secure financing. This year, Pyramid brought in capital partners to support a lower bid during a sale process run by Newmark.

The mall is not empty

Destiny USA’s financial distress does not mean the mall has become obsolete. 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.

Why it matters

Destiny USA highlights the widening gap between property performance and structured-finance outcomes across legacy retail. The mall faces weaker physical retail demand, but its debt also reflects assumptions that no longer match current property values, rents and financing costs.

The capital structure makes the situation even more striking. Even investors holding highly rated CMBS bonds can face steep losses when other obligations sit ahead of their claims.

The deal also 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.

What’s next

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. For Pyramid, buying the mortgage at a deep discount gives the developer a much lower basis and more flexibility to reposition the property.

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.