MAULED: When even healthy malls struggle to find financing, you know the industry is in deep trouble | REITs Message Board Posts

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Msg  12659 of 12699  at  11/14/2019 8:37:17 PM  by

jerrykrause


MAULED: When even healthy malls struggle to find financing, you know the industry is in deep trouble

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MAULED: When even healthy malls struggle to find financing, you know the industry is in deep trouble

Gallun, Alby.Crain's Chicago Business; Chicago Vol. 42, Iss. 45, (Nov 11, 2019): 3.
 

If finding tenants for their space wasn't hard enough, some shopping mall owners now face an even tougher task: finding a lender willing to refinance their properties.

With a $69 million mortgage coming due Oct. 6, the owner of the North Riverside Park Mall couldn't line up new financing to pay it off, opening the door to a potential foreclosure suit. In west suburban Lombard, the owner of Yorktown Center failed to pay off a $114 million senior loan when it matured in March but managed to push off reckoning day by negotiating a one-year extension of the due date.

Add a lack of financing to the list of problems facing mall owners already battered by store closures and the growth of online shopping. They are adapting to the e-commerce era by diversifying their properties with restaurants, fitness centers, entertainment concepts and even apartments.

But many lenders still won't get near a mall these days, wary of the risk of falling rents, occupancies and property values. Even healthy malls like North Riverside Park, which generates more than enough cash to cover its monthly debt payments, have struggled to refinance maturing loans.

"There's a stigma effect," says Jim Costello, senior vice president at Real Capital Analytics, a New York-based research firm. "People are painting the mall sector with a broad brush."

Falling mall values have made it harder for many owners to borrow money. An index of U.S. shopping mall values has dropped about 30 percent from its peak in late 2016 and has declined 13 percent in the past year, according to Green Street Advisors, a California-based research firm. Malls are the only real estate sector to have lost value over the past 12 months.

Yorktown Center illustrates the trend. One of the biggest shopping malls in the area, the 1.4 million-square-foot property at Butterfield Road and Highland Avenue was appraised at $175.3 million in February, down 28 percent from $242.7 million five years earlier, according to a Bloomberg report on the property's debt. The mall lost a Carson's department store last year, and its income has declined, but public filings indicate that the property is still generating enough cash flow to cover its debt payments.

Still, even malls that are covering their debt payments can run into trouble when a loan comes due. If a mall has declined in value, its owner can still get a loan but not one large enough to pay off the maturing debt. The investor has three options: to hand the mall over to its lender, try to negotiate an extension of the loan's maturity date or invest new equity in the property to pay off the old mortgage.

It's unclear whether Yorktown's owner, a joint venture that includes New York-based private-equity giant KKR, will pay off its loan, which now matures March 9, according to the Bloomberg report. In one sign that it doesn't plan to walk away, the venture paid down about $6.4 million in debt in September, bringing the senior loan balance to $107.4 million. A KKR spokeswoman declines to comment, and a representative of Key Bank, which is servicing the loan, did not return a phone call.

The North Riverside Park Mall also may face a financing gap, but its owner, the New York-based Feil Organization, is committed to bridging it, says Harvey Ahitow, the mall's general manager.

"They're willing to put new money into the property to pay down the debt and to renovate it," he says. "They're very bullish on the property, and rightfully so."

A Feil executive declines to comment, and a representative of LNR Partners, the servicer of the loan on the mall, didn't return a phone call.

REGROUP

Totaling about 1.1 million square feet, North Riverside Park is considered a "Class B" mall, surrounded by a dense but moderate-income population. The property at 7501 W. Cermak Road is regrouping after multiple setbacks. Carson's closed its department store there when it liquidated last year, and the store, which is under different ownership, is in foreclosure. Sears shrank its department store in the mall and shut down a Sears Auto Zone on the property.

But the mall is bouncing back, with a Round 1 amusement center and bowling alley and Amita Health taking over part of the Sears space and Blink Fitness leasing the Sears Auto Zone site. A national homebuilder has expressed interest in developing townhomes on the site of the Carson's store, and the Classic Cinemas movie theater at the mall is expanding. Including leases in the works, the mall will be 98 percent occupied soon, up from 92 percent now, Ahitow says.

"This is a center that's going to survive," he says. "There's no question about it. That's because we have an owner who's willing to invest in it."

Yet lenders remain leery of malls. Some worry about co-tenancy clauses in leases that allow smaller tenants to terminate their leases when department stores shut down, says mortgage broker David Hendrickson, managing director at Chicago-based Jones Lang LaSalle. Some smaller tenants will use a department store closing as an opportunity to renegotiate lower rents for their space, pushing down the property's income.

As e-commerce continues to disrupt the retail industry, more mall owners will struggle to refinance their properties. The disruption will also accelerate a winnowing process that's already underway, with the strongest local malls, like Oakbrook Center and Old Orchard, flourishing and the weakest going out of business.

"There are a lot of haves and have-nots," says Real Capital's Costello. "I think it's going to be a continuing thing."

 


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Msg # Subject Author Recs Date Posted
12660 Re: MAULED: When even healthy malls struggle to find financing, you know the industry is in deep trouble hajohn08 0 11/15/2019 7:37:06 AM






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