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The Plan: Santa Monica’s Historic Sears Gets New Life

Kacy Keys has fond memories of visiting the Sears in downtown Santa Monica, Calif., recalling childhood trips to the department store with her grandmother in the 1970s. At that point, the retailer could rightly claim, as per its advertising at the time to be “Where America Shops,” but, of course, that didn’t remain the case. Declining sales forced the iconic American retailer to shutter 200 stores just last year.

Keys, who has spent much of her career on adaptive reuse projects, is hardly caught up in the past. (She was most notably the senior real estate representative in L.A. Mayor Richard Riordan’s Office of Economic Development, where she spearheaded the Adaptive Reuse Ordinance and major development projects in downtown L.A. and surrounding areas, including the Staples Center, Walt Disney Concert Hall and the Old Bank District.)

As senior vice president and head of the Western division of Seritage Growth Properties, the publicly traded real estate investment trust established by Sears in 2015 that owns 253 Sears and Kmart stores, she is charged with finding new uses for struggling properties. The three-acre, centrally located Sears in Santa Monica is one of three premier projects being reworked this year. (The company broke ground last November on the Esplanade at Aventura, an all-retail project in South Florida, which will replace the Sears at the Aventura Mall and is redeveloping another Sears property at the Westfield University Town Center in San Diego.)

For the Santa Monica location, a verifiable landmark—designed by noted architect Rowland Crawford in Late Moderne style—Seritage is working on keeping historic details of the store while bringing it into the modern age with an estimated $50 million budget.

The mixed-use project is expected to break ground this month after clearing one final hurdle—a hearing and expected greenlight from the California Coastal Commission slated for March 8—will preserve the historic exterior of the big-box store, while literally lightening it up.

Following the temporary removal of the roof, Los Angeles-based House & Robertson Architects, will cut holes in the floor plates in the middle of the building to allow the atrium’s natural light to reach clear down to the basement level. The removal and replacement of the roof is also part of the seismic retrofitting needed for the 70-year-old building.

A fourth story will be added by capturing attic space between the third floor and the roof that was previously used for storage. The roof will be restored as a landscaped and furnished outdoor deck with ocean views and will be a key amenity for tenants of the approximate 53,000 square feet of office space for rent on the top two floors. Keys predicts that a single tenant will occupy the space, and, given its location in Silicon Beach, will likely be a tech-driven or media-oriented client, though, “it could be a hedge fund for all we know, right? Keys said with a chuckle. True. Creative office is a growing demand in all sectors.

The architect is behind the revamp of other local notable properties, including the Petersen Automotive Museum on Museum Row, and the expansion of the historic Farmers Market in the Fairfax District.

An office lobby, courtyard and Market Hall featuring a mix of 32 retail and food-and-beverage vendors will take up approximately 58,000 square feet of retail space at the ground and basement levels of the property scheduled to be open in the fall of 2019. AVRO/KO is the design architect behind the Market Hall portion. Nabih Youssef Associates is the structural engineer.

Keys said the building’s rebranding as “Mark 302″ was to not only reflect its address at 302 Colorado Avenue, but also the Market Hall concept and its place as a destination moving forward.

While the Sears logo is still visible in official renderings of the property, whether it remains is yet to be determined and will depend on the tenant’s preference.

Despite being situated at the back of Macerich’s high-end outdoor mall Santa Monica Place and the retail-ladened Third Street Promenade, Keys said they didn’t fear oversaturation, especially given the influx of an estimated 60,000 daily riders at the terminus of the city’s expanded Metro Expo line, which now connects downtown Santa Monica to the Eastside clear to downtown Los Angeles. (As of last June, the Metro reached its 2030 ridership goal in just about a year, with an estimated 64,164 weekday riders.)

“We think we are in a unique location,” Keys said. “We see it as the tie that connects Santa Monica Place, the [Santa Monica] Pier and the Civic Center. We’re sitting right in the middle of that cross[roads] between all of those things. The pedestrian traffic and the location between the train and the pier is ideal and really lends itself to a multi-use project here.”

Sears building redevelopment
Sears building redevelopment
Sears building redevelopment
Sears building redevelopment
Sears building redevelopment
Source: commercial

NKF’s Regional Mall Guru Thomas Dobrowski Is Taking Retail Doom and Gloom in Stride

Thomas Dobrowski might be one of the reasons why malls are not actually dying. And it’s not just because he sells regional malls, but because he arguably has been to more malls than anyone else (60 in 2017 alone), and whenever he visits one, he shops (that’s 60 purchases last year).

No, he’s not buying anything big—“just a couple small items I can throw in the bag,” the executive managing director at Newmark Knight Frank, said—but he’s still shopping at malls. And just that fact alone, he said, “inherently speaks to—when you get people in the mall they’re going to spend money.”

Dobrowski, who handles regional mall investment sales nationally, sold 13 regional malls last year. (Whenever he gets an assignment, not only does he tour the property he’s selling; he check out the mall’s competition.)

While there’s no doubting that malls, and retail in general, face headwinds—only five malls have either opened or are under development since 2007, while about 200 have closed in that time Dobrowski said—the broker remains optimistic about the future of the industry. “The news does not help pricing. However, it does help bring attention and interest to mall properties for sale,” Dobrowski said, “because savvy investors recognize that this could be a once-in-a-lifetime opportunity to pick up malls at good prices.”

Dobrowski didn’t start his career in the mall business. After graduating with a bachelor’s degree in finance from Villanova University he worked in Morgan Stanley’s real estate investment banking group. He got into the mall business at the now-defunct Rockwood Real Estate Advisors, where he worked from 2002 through 2014, before NKF came calling. The brokerage was looking to “grow a capital markets platform and grow a national brokerage business,” Dobrowski said.

Since then, Dobrowski has been NKF’s lone regional mall investment sales broker. With the help of a support staff of three who handle underwriting, analytics, materials preparation and research, he sold 13 out of the 30 brokered mall deals last year, making the sellers’ representative’s market share nearly 50 percent.

Being in a business that is not territory based, Dobrowski can be based anywhere in the country, but prefers New York City, his home for the last 18 years or so. (He, his wife and their 3-and-a-half year old son live in the East Village.)

As people continue to speculate about the future of malls, CO sat down with the 39-year-old broker at NKF’s digs at 125 Park Avenue last week to make sense of it all.

Commercial Observer: What’s your take on the doom-and-gloom mall headlines?

Dobrowski: My opinion is, it’s very overblown—the “death of the mall” headline.

Do you only deal with noncore assets?

Look, all the REITs want to hold onto their good assets obviously, or assets that they feel they can add value to so our business today is really split 50-50—50 percent of our sales come from the REITs that are shedding their non-core assets and then the other 50, plus or minus, come from [commercial mortgage-backed securities] special servicers and lenders that have taken back a lot of these malls over the last decade that were overleveraged and now are in many cases distressed. I grew this business out of the distressed mall market [back] in 2011, 2012 when malls started to sell again. A lot of the mall REITS, when these loans came due, and even today, when they come due, if they can’t refinance out of them, they’ll just give the keys back to the lender and that obviously is the beauty of CMBS financing. One of the best sources of lending for regional malls is CMBS debt.

Why is that?

I think because that’s where there is the biggest appetite for that type of loan. A lot of the insurance companies and a lot of the balance-sheet lenders typically have shied away from regional malls, just given the complexities behind them. They’re relatively illiquid in markets. And CMBS historically was the go-to source of financing [for regional malls]. That’s started to change now because obviously the headlines about malls are pretty tough. So that’s really why you see, [with] a lot of the sales today, the valuations are much lower than people ever really anticipated, even though we’re obviously in a really great economic cycle and there’s growth and retailers are doing well in many cases. But buyers are just underwriting out all of the risk associated with most malls. The proof is in the pudding. The reality is a lot of these malls are suffering around the country.

Have the mall owners found financing materially more difficult?

Yes. In the last 24 months, in particular, I would say financing has become one of the major hot points or constraints with respect to really selling bigger malls that require real financing. Because the equity check gets bigger, the number of players gets smaller who can stroke a big check to take down a $50-plus-million-dollar mall, which is a big deal today. Ten, 15 years ago, we were selling malls at $100 [million] and $200 million valuations. If you look at 2017, most malls were, call it between $20 million and $60 million, plus or minus, that sold.

How would you characterize lenders’ level of caution?

Well, much like buyers—but even more. They’re much more cautious where they are really concentrated on two or three main aspects. One is who the sponsor is: Do they have a track record? Do they have an expertise in the space? Because there are a lot of new owners and new buyers starting to enter the mall field today. Next, it’s starting to get into the property: Who are the anchors? What’s my anchor risk? Do I have a Sears, Bon-Ton, JCPenney, a Macy’s, kind of a lot of the anchors that are worrisome today for a lot of folks, and what does that risk look like in relation to really the rest of the mall and what are the options of re-tenanting those spaces? The third one is really then, Who’s the competition for that mall in that given market?

What are the most essential differentiating factors between malls with a positive outlook and those with more cause for concern?

I always give the comparison: It’s like a custom suit. From 50 feet away, your navy blue suit that you buy off the rack at Macy’s could look the same as the one you buy at Brioni, right? So when you look at a mall from an aerial, it could have Macy’s, Dillard’s and JCPenney and Sears and have very similar tenants on the inside, and that mall could be 10 miles outside Manhattan, and it’s killing it. But then you could take that same mall and put it in the middle of Ohio with the same tenant makeup: Once you get closer into it, [it’s floundering]. So what do we look at? I would say the big driver…is what are the options for that consumer in that market and what’s going to continue to drive them to continue to go to that mall into the future. If that mall is in a market that has two or three other malls but the market really only needs one…it’s going to be hard to make a case that [all three] need to exist. They may keep going for a while. Malls don’t die of heart attacks. They don’t die overnight. It takes a very long time for a mall to go away. It could take five years, it could take 10, it could take 15. Once you’re comfortable knowing that that mall can survive in that market, it’s then, What can I do to improve upon the tenant mix that is there today?

There’s enough there you don’t need to sell open-air shopping centers?

Correct. I can comfortably say we’re the only team probably in the country that can say we focuws 100 percent of our time and efforts on covering the regional mall market, which is why we have, arguably, the biggest market share, because we’re just ingrained in this sector. 

What would you say is impacting malls besides e-commerce?

It’s changes in shoppers’ habits I would say and changes in the shopper demographic. I can give the example of, when I was growing up [in Holmdel, N.J.], it was always the mall where you bought everything, from soup to nuts. Right? Malls were woven into the social fabric. You hung out there. It was always where you sort of went shopping for back to school and holidays and everything in between. You first date at the movie theater was at the mall [and] you maybe ate at the food court.

screen shot 2018 01 09 at 12 10 56 pm NKF’s Regional Mall Guru Thomas Dobrowski Is Taking Retail Doom and Gloom in Stride
MALL FOR ONE: Dobrowski has had his hand in selling dozens of malls in his career, including Foothills Mall, at top, Mesa Mall, in the middle and College Square Mall, at the bottom.

What’s the biggest deal you’ve ever done?

The largest mall sale I ever worked on was a mall out in California called Stonestown Galleria, right outside San Francisco. We sold it for $312 million at the peak of the market [in August 2004]. It’s still a great asset. It’s still owned by [General Growth Properties].

What’s the last mall you sold?

Moreno Valley Mall in Moreno Valley, Calif. The all-in purchase price was $63 million. It was one of the bigger sales of 2017. It’s one of the best malls I’ve sold in the last five years.

Why?

It’s a complete contrarian story. This mall was foreclosed and taken over by CWCapital, a special servicer, in 2011. It’s one of the few malls, since they took ownership, it has only steadily improved year over year. And, it’s just a great case study in execution in terms of they brought in Round1 [entertainment company], they brought in Crunch Fitness, they brought in cool retailers that weren’t in that market before, and a lot of it has to do with Inland Empire California, which got hit really hard in the recession but has since emerged and exceeded expectations you can say in terms of population growth. And the mall stood to benefit from that. And we sold it to a private owner outside of Beverly Hills, [International Growth Properties]. This closed on Nov. 28, [2017].

How long does a mall typically take to sell?

Three to six months I would say is average. The time to sell them is not necessarily the part of selling malls that is most challenging.

What is?

It’s just the sheer complexity of the properties and the amount of time and effort that has to go into preparing offering materials and underwriting the asset that I think a lot of brokers would shy away from that, plus it’s a national product type and most brokers focus on regions, and that’s how most brokerage offices are set up. So we don’t sell anything in the immediate New York metro because there’s not really a mall market there.

Are you worried, with the death of mall stuff, about your future with this slice of the market?

I get that question a lot. A lot of people are like, Why do you put all of your chips in this basket, focus on this one product type? The answer is no. If you look at the peak of the market, there were 1,300 malls in the U.S., a well-established fact in 2007. Today, there are around 1,100. We’ve only lost 200 malls in 10 years’ time. If it took 10 years to get rid of 200 malls, is it another 10 or 20 of sales, trades, transactions to get these malls into the right hands of people that will really redevelop them, close them down and have them developed into something else? So, I think there’s a lot of runway left in terms of the number of sales that will happen over the next, call five to 10 years, and candidly, I think it’s only going to ramp up and increase. I think there’s going to be more transactions in 2018 than there were in 2017.


Source: commercial

Mall Developers Bet on the Basics—and a Trampoline or Two

The death of the American mall has been a topic discussed ad nauseam. Whether through overdevelopment, the rise of Amazon or the financial woes of traditional anchor tenants like Macy’s and Sears, brick-and-mortar retail—and the mall meccas that house them—have had their obituaries posted for the last year, or more.

Yet, in seeming defiance of the mournful headlines, private investors, with the funds and ability to reinvent struggling properties, are buying into the regional mall model that has defined the U.S. retail landscape since its creation in the mid-1950s by Victor Gruen.

Way back when, Gruen, the Austrian-born architect created the nation’s first grand shopping center, the 800,000-square-foot Southdale Center in Edina, Minn., in 1956 and still operates as the oldest, fully enclosed shopping mall in the United States. He was inspired by the town center of Vienna where he was born. He envisioned a communal gathering spot with a lively mix of commerce, art and entertainment. A socialist who hated cars, Gruen designed the development with long promenades and parking lots built far away to encourage walking. Gruen also envisioned a property with medical centers, schools and residences, not just an array of retail.

He wasn’t alone. Matthew Bucksbaum and his brothers, Maurice and Martin, the founders of what would become General Growth Properties, bought a struggling shopping center in Cedar Rapids, Iowa, around the same time and went on to expand to many small cities throughout the Midwest.

The model was widely embraced, and the rest is history. Today, there are an estimated 1,200 malls nationwide, primarily in suburban areas, inspired by Gruen’s conception—one he grew to despise. They didn’t bring about the vibrant urban centers Gruen envisioned; they led more to the rise of American car culture, suburban sprawl and the decline of walkable downtowns.

Is it any wonder then that the American mall—a concept dreamed up and later cursed by its own creator—would continue to stir debate and contradictory ideas about how to run, refashion or completely reinvent them?

Round1 Bowling
The Moreno Valley Mall is turning itself around by bringing in a bowling alley, gym and trampoline park. Photo: Dan Arnold Photos

Too Much of a Good Thing

“You know, the big question is, How many malls does the country need?”

This is the question asked by Thomas Dobrowski, the executive managing director at Newmark Knight Frank in New York, who handles regional mall investment sales nationally.

“Does it need 500? Does it need 800? There’s no question that the U.S. is over-retailed, and it’s really the regional malls that have been overbuilt. There are just too many, especially with people shopping more and more online and with people looking for more experiential experiences.”

Pete Bethea, an executive managing director at NKF, concurred.

Some of these centers that are in secondary and tertiary markets were just overbuilt with retail. So, instead of there being three viable centers, there might be one,” said Bethea, who is based in NKF’s San Diego office and focuses mainly on open-air suburban mall property sales. “What happens with those other two centers [depends on what] the market lends itself to, right? What is the next evolution of use of that space or that land?”

As mall real estate investment trusts (REITs) have been shedding their B- or C-level malls or noncore assets over the last five years, private equity investors have stepped up to purchase them.

“Contrary to all the news out there, there have been a lot of transactions happening in the enclosed mall space,” Dobrowski said. “Some of the malls we’re selling are almost exclusively to private equity or high-net-worth buyers who don’t have the same scrutiny that an institutional or typical mall REIT would have when it comes to repositioning or redeveloping these malls by bringing in alternative uses.”

Dobrowski said that a lot of the malls he sells are purchased to continue as malls with about one-third bought to be redeveloped.

He pointed to the Moreno Valley Mall in San Bernardino County outside of Los Angeles, which was previously owned by GGP before the company filed for bankruptcy in 2009 in one of the largest commercial real estate collapses in U.S. history, as a prime example of a mall turnaround.

NKF sold the property on behalf of CW Capital, which had bought it back from GGP, for $63 million in November 2017 to International Growth Properties, a small private equity firm in Beverly Hills.

IGP brought in a gym, Crunch Fitness—in a move most mall operators previously shunned, according to The Wall Street Journal—Round1 Bowling and Amusement, Action Time Bungee Jumping (a trampoline park) in addition to movie theaters and anchor tenants like Macy’s already on the premises.

“They really transitioned this mall from a kind of cookie-cutter enclosed mall with your traditional anchor tenants into a shining star of a lot of the malls that we sold this year,” Dobrowski said.

He and Bethea expect the trend to continue given market conditions.

“Pricing now is at a level where it makes sense to purchase a property and then go reinvest and reposition it,” Bethea said. “We’re in the early innings of that starting to happen. There are double-digit cap rates. Certainly, in the world of suburbia, we are starting to approach the 8 or 9 [percent cap rate] in submarkets.”

Dobrowski said the trend will likely accelerate in the next 12 to 24 months, depending on the state of major retailers.

“Last year was a big year in terms of stores closing and bankruptcies, and 2018 will probably be another big year,” he said. “But to redevelop a mall takes a long time. It’s a two- to five-year process, so we’re really just in the early phase of malls being purchased to eventually be redeveloped.” (For more from Dobrowski, see the Sit-Down on page 32.)

Adapt or Perish

IGP’s strategy of incorporating something like a trampoline park is exactly what the mall redevelopers are looking for to attract consumers to their properties, from families to millennials. Some are going even further. The long-stalled American Dream Mall in Northern New Jersey is back in business with construction resumed and developer Triple Five Group targeting a fall 2018 opening. The 6-million-square-foot property at the Meadowlands sports complex will feature the country’s first indoor ski slope, an aquarium, an indoor water park with a 1.5-acre pool capable of generating seven-foot waves and the largest indoor theme park in the Western Hemisphere with four roller coasters.

Triple Five, the Canadian company that already owns the two largest malls in the Western Hemisphere, the Mall of America in Minnesota and the West Edmonton Mall in Canada, is obviously betting big on the megaproject despite the pessimism surrounding traditional brick-and-mortar enterprises of which the shopping mall is emblematic. According to The New York Times, the developer has spent $700 million thus far on the project.

Ami Ziff, the director of national retail at Time Equities, is in the process of adding amenities to reinvigorate a few of its regional mall properties, including the Newgate Mall in Ogden, Utah, for $69.5 million in August 2016 from GGP, as CO previously reported and two malls in Tennessee purchased from Chattanooga, Tenn.-based CBL & Associates Properties for $53.5 million last May.

In addition to adding a Fly High Trampoline Park, which will occupy 41,000 square feet at the Newgate Mall, Time Equities is looking to add amenities that can meet the human’s need to socialize and appeal to social media and Instagram-addicted consumers.

There are plans for flash mobs as a special event, as well as immersive experiences, including a bubble and ball exhibit like the one the company has at its residential condominium at 50 West Street in Manhattan.

At Newgate, Time Equities will be renovating the food court area with the addition of a fireplace and common-area seating meant to evoke a ski lodge with seasonal and community programming—think caroling and hot chocolate around the fire during the winter holidays, s’mores and ghost stories come Halloween.

“There is such a difference in the kind of work that goes into owning a mall versus a strip center,” Ziff said. “You might have a lot of the same tenants, but the fact that you have this common space, there’s a significant burden on the landlord as well as the tenants to produce experiences. There needs to be a whole marketing agenda and program that we roll out at different malls based on different needs, timing and markets.”

Ski slope in Dubai
The long-stalled American Dream Mall will include an indoor ski slope like the one in Dubai . Photo: Getty Images

Alternative Uses

In addition to off-the-hook amenities, mall developers have turned to creating truly mixed-use properties, including creative office space, residential, grocery and, at some, alternative uses like medical facilities, thereby creating in effect the one-stop community center Gruen once envisioned.

“The same Baby Boom population that fueled regional malls and other retail property types in the 1950s, ’60s and ’70s continues to do so,” said Mark Hunter, the managing director of retail asset services for the Americas at CBRE based in Chicago. “We’re now seeing Baby Boomers [are] now requiring additional medical services and [how they’re being integrated]. A perfect example of that is the 100 Oaks Mall in Nashville, Tenn.”

In 2007 100 Oaks Plaza, which bought the property the previous year for $49.2 million, redeveloped one of its department stores into a medical center for The Vanderbilt University Medical Center, which leases over half of the 850,000-square-foot building. “I think you’re going to continue to see this trend where there’s a mix of medical, office, entertainment and residential as different markets adapt to the changing environment,” Hunter said.

Data centers could also fill in space left by struggling retailers, given the rise in cloud storage needs, pointing to how Rackspace, a web-hosting company based in San Antonio, moved its corporate headquarters into the local now-shuttered Windsor Park Mall in 2012.

Then there is a model that turns the whole American mall discussion on its head. Billed as a “solution to the retail conundrum,” Case Equity Partners introduced a patent-pending concept called the Shopping Fulfillment Center last month. The SFC, a hybrid of brick and click, combines a vast fulfillment center in the back of a retail center component. In the proposed model, retailers would share logistics costs and require much less in terms of traditional square footage. It would allow customers to peruse or test out their products, but instead of, say, having to stock several varieties of a high-touch item like a sweater, one would suffice with a vast array of options housed in a communal warehouse in back. (For more on the concept, see Chopp’s column on page 35.)

Omnichannel and Co-Existence

Arthur Coppolla, the chairman and CEO of Macerich, one of the country’s leading owners of high-end mall REITs, is bullish about the future of brick-and-mortar retail.

“If you read the social media and the news media, you would come to the conclusion that Amazon and e-commerce are killing all legacy retailers, but I see digital as being the best of friends with brick-and-mortar retail,” Coppolla said during a keynote talk at “Rethink: Emerging Macro Trends in Real Estate” in Los Angeles this past December. (Coppolla declined to be interviewed for this article.)

Coppolla said the common misperception among investors is that Amazon is synonymous with e-commerce “and that there’s nothing else, which is not true.”

Digitally made, vertically integrated brands—brands that have a niche and identified a broad market to disrupt and are not Amazon—are where it’s at in terms of the next great brands.

“Digitally native is a very chic place to be born,” he said. “Digital brands are growing at a far greater rate than e-commerce itself. If you look at the next [few] years between now and 2020, the digitally native brands are going to be generating as much business as Amazon direct.”

If you want a glimpse into the future of traditional retail, he said, just look to its past.

“The future of retail is its past,” Coppolla said. “If you look at legacy retailers, department stores were everything. They distinguished themselves in how they curated brands for their customers. But they cut sales people on their floors and lost touch with their customers. We have to be curators of brands like how department stores used to be.”

Successful malls need to take over where legacy retailers faltered and curate brands. E-commerce, he said, is the driver of brand creation today, and as such, he is actively seeking digitally native brands to his properties and the feeling among these brands is mutual.

“These digitally native brands, they all believe that brick and mortar is where they want to go because, when they open their store, that’s when they feel that they have arrived. It’s the last mile for them in terms of having a relationship with their customer,” Coppolla said.

Not only can e-commerce and brick and mortar co-exist, but according to Hunter at CBRE, the perception that online selling eclipsed traditional retail is much overblown.

“When you really delve into where most retail sales are happening today, as of last year, 9 percent of all retail sales were online, meaning 91 percent of all other retail sales were done in a physical space,” he said. “Our research shows that peaking in the next, call it, eight to 10 years in the high teens. Still, the bulk of retail sales will be done in physical space.”

The more important point, he said, is that, to thrive, retailers must be adept at omnichannel distribution.

“Whether you’re on your smartphone, or you’re in the store, it’s going to be a much more seamless transaction. You’re going to continue to see that happen, and the retailers that can adapt to the omnichannel distribution, they’re going to be very successful,” he said. “Those behind the times, that don’t adapt to that, will struggle more.”


Source: commercial

Macy’s Closing 11 Stores This Year, Clearance Sales Launch Today

Following a small uptick in sales during this past holiday season, Macy’s announced the closure of 11 stores in 2018—seven of which weren’t previously announced—hoping to save $300 million annually.

Macy’s reported its sales increased 1 percent in November and December 2017 combined compared with the same period in 2016, according to a recent company press release.

Clearance sales for the 11 stores are expected to begin today and will continue for approximately eight to 12 weeks. The closure of those stores this year represents 81 of the 100 locations it put on the chopping block in August 2016. (Macy’s has terminated 124 locations since 2015). Macy’s will reduce its workforce by 5,000 employees as a result of the closures and staff cuts made at remaining locations, as USA Today reported.

“Our primary focus in 2017 has been to continue the strong growth of digital and mobile, stabilize our brick-and-mortar business and set the foundation for future growth,” Macy’s CEO Jeff Gennette said in a statement. “We’ve made good progress on each, including encouraging trend improvements in our brick-and-mortar business.”

Among the 11 Macy’s closing this year, there are four in California including the one in Westside Pavilion mall in Los Angeles (news about its closure was announced last year, as the Los Angeles Business Journal reported in October 2017). There are two closing this year in Florida and one each in Idaho, Indiana, Michigan, Ohio and Vermont.

Macy’s—which has brands such as the flagship Macy’s, its off-price sibling Macy’s Backstage, high-end cousin Bloomingdale’s and beauty and spa retailer Bluemercury—has approximately 140,000 employees and operates more than 860 stores.

Macy’s stock has plummeted to just over $24 per share from approximately $30.46 a year ago. It is expected to report its fourth quarter earnings on Feb. 27.

Besides Macy’s, other retailers have struggled as the retail industry has changed. Sears announced on Jan. 4 that it was planning to close an additional 103 stores this year. JCPenney has plans to eliminate 138 stores. And Bon-Ton announced last year it was cutting 40 locations, as Commercial Observer previously reported.  


Source: commercial

Regional Malls Look to Reposition as Retail CMBS Space Sweats

The e-commerce contagion has pulled brick-and-mortar retailers, regional malls and shopping centers under the weather, resulting in tenant bankruptcies and mass store closures that have, in turn, put pressure on maturing retail commercial mortgage-backed securities loans predominantly those issued in 2006 and 2007, prior to the financial crisis—and created refinancing hurdles for borrowers.

“The concern is everywhere, and in some cases, it’s a surprising reality,” said Manus Clancy, a senior managing director at Trepp. “Because of the outlook for retail in general, a lot of borrowers are struggling to refinance. The problems are across the sector.”

From November 2016 to October 2017, roughly $29.3 billion in securitized mortgages backed by retail properties were paid off or liquidated, 12 percent of which was disposed with losses, according to data from Trepp. The disposed loans were written off at an average loss severity of just under 55 percent, up from around 47 percent in 2016, while overall CMBS loss severity for all loans disposed within the same time frame fell to just under 43 percent. This year, there have been 244 retail loans—totaling $3.4 billion—that have been resolved with losses at around $1.8 billion, according to data from Trepp and Morningstar Credit Ratings.

“If I had to guess, [retail loss severities] are in excess of 50 percent,” said Andrew Hundertmark, a managing director at CWCapital Asset Management. “In my opinion, a mall was never worth what it was when the loan was made. There were assumptions made to rent growth and tenant strength that didn’t turn out to be true, and 10 years ago then these loans were made, no one saw Macy’s as a troubled retailer. J.C. Penney showed some cracks but wasn’t a concern. People underwrote loans thinking everything was going to stay as it was.”

The rest is history. Retail giants such as J.C. Penney, Sears and Macy’s have closed hundreds of stores as they try to shift investment focus to e-commerce, technology and the use of delivery services. On Nov. 2, Sears announced that it plans to close more than 60 locations by late January 2018, marking 243 total closures since January 2017. The retailer will be left with around 680 stores operating in the U.S., down from 3,500 locations in 2010.

What impact have these closures had on maturing retail CMBS? These loans have been made vulnerable, in part, because they’re propped up by leases from major anchor retailers. When anchor boxes come under increased stress or shutter, it creates a vicious cycle for the mall owner or landlord that can negatively affect overall consumer traffic to small- and midsized in-line retailers such as Radio Shack or Bon-Ton Stores—both of which have recently closed stores—who fill out the mall and benefit from a strong anchor presence.

“The best we can do [as servicers] is try to stabilize tenancy and get them in longer-term leases,” Hundertmark said. “We want leasing arrangements with tenants who can take advantage of co-tenancy if anchors close. Just because you have a mall that’s troubled, it doesn’t mean there aren’t retailers ready to come in. They’re all about traffic counts, and they don’t care so much if Sears is open for business or not.”

Chattanooga, Tenn.-based REIT, CBL Properties’ Mall of Acadiana in Lafayette, La., may be a transitionable survivor. Its debt was originated by Bank of America in 2007, and the loan comprises 63 percent of the roughly $196 million BACM 2007-2 CMBS transaction. The enclosed mall at 5725 Johnston Street was previously anchored by the usual suspects: Sears, J.C. Penney, Dillard’s and Macy’s. According to Trepp watchlist commentary, Sears will shutter its location at the mall by the end of the year, and “there are significant co-tenancy implications tied to the two anchors closing, which may have a significant negative impact on cash flow and potentially collateral occupancy.” The mall is buoyed by its collection of noncollateral tenants such as a Carmike movie theater, which occupies 247,072 square feet—or roughly 81 percent —of usable space, an Old Navy, a Barnes & Noble, an Olive Garden and a Taco Bell. As of November, Trepp commentary indicated that the borrower is “self-managing and leasing the mall and continuing to make monthly payments” despite the mall’s status as nonperforming beyond maturity.

Some major high-end national mall landlords, such as Washington Prime Group or GGP, look to reposition retail space to include entertainment and lifestyle services and national restaurants. Washington Prime has even moved to use online competitor Amazon’s fulfillment lockers to help draw consumers.

“Often, the property will be sold at auction for a discounted price, and now, at lower basis, the new owner can invest and turn them around. It’s a mixed bag,” said Edward Dittmer, a senior vice president of CMBS at Morningstar Credit Ratings.

Smaller entities may not be so lucky or may not have the capital necessary to make a change, being that repositioning an anchor into an entertainment venue or fitness center can be a daunting task. It can sometimes be an even harder challenge as malls in metro areas and gateway cities are just simply outdated and face competition from newer facilities complete with more modern amenities.

westside pavilion interior 2008 Regional Malls Look to Reposition as Retail CMBS Space Sweats
Interior view of West L.A.’s Westside Pavilion mall. Photo: Wikipedia Commons

Los Angeles’ Westside Pavilion is one recent victim of an oversaturated market. The future health of the three-story, 766,608-square-foot mall at 10800 West Pico Blvd. in the suburbs came into question in August after its debt service coverage ratio fell below 1.10x as it faced hurdles with lease terminations—major tenants have begun moving just a few miles away to the Westfield Century City mall.

“West L.A. has too many malls chasing the same customer and it was due for consolidation,” said Macerich Chief Executive Officer Art Coppola—Westside Pavilion’s owner—in the company’s third-quarter earnings call. In October, Macerich, announced its search for a buyer. The $142 million, post-crisis era loan was transferred to special servicer Rialto Capital Advisors for the first time in September due to imminent monetary default. The note comprises just under 13 percent of the remaining collateral in the roughly $700 million WFCM 2012-LC5, Wells Fargo-sponsored CMBS transaction.

“[Many borrowers] view retail as undervalued and come in at a good basis with a plan and some money and an opportunity to make some good return,” Hundertmark said. “In general, people are out there trying to sell the troubled stuff. Regional malls attract a much different buyer set. Strip malls or shopping centers tend to bring in more local buyers, those who know the market and may have owned the property next door and can bring some synergies there with repositioning. The buying universe really differs, and there are a couple names in almost all sales.”

CMBS retail issuance has climbed while delinquencies have fallen 16 basis points to 6.47 since August, Trepp data shows. Changes in the way retail space is being modeled and used have most certainly spurred new investment into the sector and enabled many operators to thrive despite widespread concerns over the performance of the physical retail environment.

“A lot of the new delinquencies we’ve seen have been maturity defaults in 2017 as a result of the 2007 issuance,” Dittmer said. “Some of those loans have not been liquidated yet and are going to take some time to work through. It may take a year or two to see what will be the ultimate resolution.”

Retail delinquencies recovered more quickly than other major property types after the most recent financial crisis, according to Trepp analysts. Special servicers acted more swiftly to foreclose on distressed retail collateral to cut losses, in contrast to the “extend and pretend” approach more commonly employed with other property types, analysts said.

“We’ve talked to a lot of landlords, and most of them are scratching their heads because every location is different,” Hundertmark said. “If we can get a gym in here and a couple of nice, national restaurants, the community is strong enough, so we can keep this moving. But, retail has moved away from us, so what can we do? We can partner with or sell to a multifamily developer to put up a new development. The old retail paradigm has been shattered. There is no one size fits all.”

GGP, a Chicago-based publicly traded owner and operator of high-end malls, has sought to survive retail market headwinds by renovating former department store boxes into restaurants, supermarkets and movie theaters. Meanwhile, GGP is considering a takeover bid by Brookfield Property Partners.

“[Landlords] have got more flexibility and more options than a servicer, and [they’re] definitely getting more creative and more aggressive, taking steps they’d never dreamed of 10 years ago,” Hundertmark said. “The model was you build the mall, and the anchors stores build around you.” That’s no longer the norm as landlords can no longer rely on anchors and must take matters into their own hands.

Some analysts argue that yield can be mined easily in the right market with the right strategy. “The bright side is pruning season is ending,” Clancy said. “Sears and Macy’s have been pruning and closing stores, but what’s left in their portfolio they’re confident in. Simon Property Group and GGP and others who provide experience can still make the business model work. The headlines have outpaced reality. People can still make a good buck with the right strategy, market and tenants. What’s disastrous is older malls, sagging demographics and newer competition.”

National mall landlords who can reposition these assets may be the future of regional malls as they’ve been able to exhibit the clout and capital needed to entice bondholders and take on such projects. And, these companies, like GGP, have seen its stock price climb in recent months.

There’s an interesting variety of players at auction for distressed regional malls, ranging from major national mall landlords to development firms looking to use the typically stellar locations where malls have been built to construct lifestyle centers full of national retail brands and restaurants, along with a residential building to help drive foot traffic and spark cash flow.

“First things we look for from a borrower is do they have the desire and the capital to reposition this mall, and three, do they have a plan?” Hundertmark said. “If they don’t know what they’re doing with the capital, they’re wasting everyone’s time. More and more we’re seeing them come in with a plan and turn it into a discount strip center or what have you.”

With approximately 25 percent of the CMBS arena being retail and roughly $3.1 billion in retail CMBS set to mature in the next 12 months, many borrowers may be done wiping their noses and ready to lick their chops.


Source: commercial

Brookfield’s Takeover Bid Is the Latest Chapter in Mall Giant GGP’s Turbulent History

When Brookfield Property Partners lodged a $14.8 billion takeover bid for GGP last month, it raised the possibility of one of the biggest real estate mergers and acquisitions seen in recent years—one that would create a massive company with nearly $100 billion in assets globally and annual net operating income of roughly $5 billion, Brookfield said in announcing the bid.

It also marked the latest chapter in the tumultuous history of the Chicago-based real estate investment trust formerly known as General Growth Properties. The past decade, in particular, saw GGP emerge from the wreckage of one of the biggest real estate bankruptcies in history in 2009—when it was unable to refinance more than $27 billion of debt in the wake of the financial crisis—to re-establish itself as one of the nation’s major players in the Class A mall space, with assets ranging from prestigious shopping centers in Honolulu and Southern California to high-street storefronts on Fifth Avenue.

GGP’s renaissance has come under the guidance of Sandeep Mathrani, who left his role as head of Vornado Realty Trust’s retail division to become the REIT’s chief executive officer in 2010, when the company was just getting back on its feet after the bankruptcy. With the help of investment from the likes of Brookfield and hedge fund investor Bill Ackman’s Pershing Square Capital Management, GGP shed dozens of properties, rid itself of burdensome holdings by spinning off Rouse Properties and the Howard Hughes Corporation into standalone companies and exiled to the past the legacy of the Bucksbaum family—which founded General Growth Properties in the 1950s but also oversaw its descent into financial ruin. Today, GGP has regained its status as one of the largest publicly traded owners and operators of retail properties in the U.S., with a portfolio of more than 120 properties spanning roughly 123 million square feet.

Yet, the Brookfield takeover proposal comes at a significant juncture for both the company and the market in which it specializes. The challenges facing the brick-and-mortar retail sector today have been well documented, with the Amazon-fueled rise of e-commerce having contributed to store closures at a rate unseen since the Great Recession.

Though GGP’s profile as an owner of high-quality, Class A malls has insulated it somewhat from headwinds that have most heavily impacted Class B and Class C malls and shopping centers throughout the country, the company has not been altogether immune from the great retail apocalypse of 2017. The struggles of department stores like Sears, Macy’s and J.C. Penney, which historically were counted on as mall anchor tenants capable of driving customer traffic, have prompted GGP to spend more than $2 billion to redevelop roughly 9 million square feet of space across its portfolio—mostly “anchor boxes” formerly occupied by such department stores that it has sought to reposition into restaurants, cinemas and other uses more relevant to the current retail market climate.

headshot mathrani e1512493521894 Brookfields Takeover Bid Is the Latest Chapter in Mall Giant GGPs Turbulent History
Sandeep Mathrani. Photo: GGP

Like fellow Class A mall REITs Simon Property Group, Macerich and Taubman Centers, GGP has seen its stock price undertake a slow and steady slide over the last 12 months as investors have increasingly subscribed to the doom-and-gloom narrative surrounding the retail sector. Market conditions have meant that GGP (also like its peers) has found itself consistently trading at a discount to its actual net asset value (NAV); by Nov. 6, the day before news broke of the Brookfield takeover talks, GGP’s share price had fallen to $19.01, down from its 52-week high of $26.63 and well below the company’s consensus NAV of more than $28 per share (analysts who spoke to Commercial Observer for this story pegged GGP’s NAV at anywhere from $26 per share to $35 per share).

Brookfield’s initial bid for GGP, meanwhile, came in at $23 per share, or $14.8 billion in total, and took the form of a 50-50 cash-equity offer comprising $7.4 billion in cash and another $7.4 billion in Brookfield Property Partners (BPY) stock. BPY, a subsidiary of Toronto-based investment giant Brookfield Asset Management, has held a sizable stake in GGP since helping bring the company out of bankruptcy in 2010, and the deal would see it acquire the 66 percent of GGP that it does not already own. (In the third quarter of this year, Brookfield exercised stock warrants to increase its ownership interest in the REIT from 29 percent to 34 percent by purchasing 68 million GGP shares for $462 million.)

“Brookfield’s access to large-scale capital and deep operating expertise across multiple sectors, combined with GGP’s high-quality retail asset base, will allow us to maximize the value of these irreplaceable assets,” Brookfield Property Partners CEO Brian Kingston said in a statement announcing the bid.

Brookfield noted that its takeover offer constituted a 21 percent premium on GGP’s “unaffected closing share price” of $19.01 on Nov. 6, as news of the proposal immediately pushed GGP stock to north of $22 per share the next day and above $24 per share on Nov. 13, when Brookfield officially announced its offer. In the wake of the bid, GGP said it had formed a “special committee” of independent directors—excluding Mathrani and directors affiliated with Brookfield, such as Kingston, BPY Chairman Ric Clark and Brookfield Asset Management CEO Bruce Flatt—to review and consider Brookfield’s proposal and “pursue the course of action that it believes is in the best interests of the company.”

Representatives for both GGP and Brookfield declined to comment for this story.

With the offer coming in well below most analysts’ valuation of GGP, many are split on whether the deal provides good value for GGP shareholders at a challenging time for the retail sector at large, or if it undervalues one of the top publicly traded commercial landlords in the country and could prove a mere starting point in negotiations between the two sides.

“I’m sure everyone would like to get a deal done; the question is, What is the price Brookfield is willing to pay?” said Alexander Goldfarb, a managing director and senior REIT analyst at Sandler O’Neill + Partners, who noted that the initial Brookfield bid “undervalues” GGP below Brookfield’s own internal net asset valuation of the company of around $30 per share.

Goldfarb and other analysts also called into question whether GGP investors would be willing to accept BPY stock as part of any deal. In a note released last month, BTIG equity research analysts James Sullivan and Ami Probandt described BPY’s stock, which has been trading between $21 to $24 per share for most of this year, as “relatively illiquid with very low average trading volume.”

“Our assumption is they’ll have to improve their offer; no one ever throws in their best offer first,” Goldfarb said. “I think Brookfield sees the real story, which is the company being undervalued by the Street.”

Anita Ogbara, a director and credit analyst at Standard & Poor’s, described the Brookfield bid as “opportunistic” at a time when there is “a lot of pressure on valuations” in the mall REIT sector. “We don’t know what the ultimate outcome is going to be, but there’s a clear sign that [Brookfield is] trying to take advantage of the discount versus the true value of [GGP’s] assets.”

While Brookfield’s first crack at a GGP takeover may have been “an underwhelming offer” for many stakeholders, Haendel St. Juste, a managing director and senior equity research analyst at Mizuho Securities USA, said that challenging conditions in the retail space could end up having outsized sway over whether a deal gets done or not. He noted that, speaking to participants at the National Association of Real Estate Investment Trusts’ annual REITworld convention last month, there is a sense that an offer of around $25 per share “would maybe carry the day.”

“People are disappointed [in the $23-per-share offer], but then again I think there’s been a resignation among folks—that maybe it’s not great on its face, but given the current dynamic, maybe it’s as good as you could hope for or expect,” St. Juste said.

gettyimages 171080470 Brookfields Takeover Bid Is the Latest Chapter in Mall Giant GGPs Turbulent History
Brookfield Place in Battery Park City, Manhattan. Photo: Getty Images

Should a deal go through and Brookfield acquire GGP, it is unclear what will become of the company’s leadership and whether the likes of Mathrani will remain in some position or capacity. What appears more certain, according to analysts as well as sources with knowledge of Brookfield’s operations, is that the combined company would look to leverage Brookfield’s exposure in nonretail sectors, such as office and residential, to potentially reposition underperforming properties in the GGP portfolio.

“We are excited about the opportunity to leverage our expertise to grow, transform or reposition GGP’s shopping centers, creating long-term value in a way that would not otherwise be possible,” Kingston said in his statement announcing the bid.

While GGP has already made steps toward pursuing such repositionings—having recently announced a partnership with residential REIT AvalonBay Communities to build apartments at one of GGP’s malls in Seattle—Brookfield would likely seek to further that approach, as it did with select Rouse Properties assets in New Jersey and Vermont in the wake of its $2.8 billion acquisition of the mall landlord last year.

Mizuho’s St. Juste said the integration of a more diverse array of uses at malls and shopping centers is warranted in an environment where “there’s too much retail in the United States” and landlords are seeking new ways to drive traffic.

Sources also said that while Brookfield would almost certainly look to hold long-term onto GGP’s premier retail assets—such as the Ala Moana Center in Honolulu, Glendale Galleria in Glendale, Calif., and Tysons Galleria in Washington, D.C., suburbs—it would probably seek to offload other lower-quality properties either through outright sales or joint-venture partnerships.

It would also remain to be seen what happens to GGP’s high-street retail portfolio, a market in which former Vornado executive Mathrani upped the REIT’s exposure via the acquisition of pricey storefronts along luxury retail strips like Manhattan’s upper Fifth Avenue corridor.

Sandler O’Neill’s Goldfarb noted that GGP’s foray into the luxury street retail space was one of the few areas where Mathrani “got pushback” from investors and observers, given that the REIT entered that market “right at the peak” of New York City property values—via deals like its nearly $1.8 billion acquisition of the Crown Building at 730 Fifth Avenue, which GGP acquired alongside retail magnate Jeff Sutton of Wharton Properties.

“[Mathrani] had done [street retail] at Vornado and he saw an opportunity at GGP,” Goldfarb said. “It was just that the prices he was paying were top of the market.” While GGP has found success with its street retail assets—most notably signing luxury fashion brand Bulgari to a pricey lease to maintain its presence at the Crown Building—depressed Manhattan street retail rents could contribute to a change in approach.

Whatever direction is in store for a new Brookfield-helmed GGP, it is almost certain that a successful takeover would shake up the market as far as publicly traded retail landlords are concerned—and very well signal a time of heightened consolidation as the industry takes on virtually unprecedented headwinds.

“It’s created an M&A tailwind and brought some investors back in the space,” St. Juste said, citing how the likes of Simon, Macerich and Taubman have also seen their share prices run up in the wake of the Brookfield bid. “Next year is going to be tough from an operational perspective; without this M&A buzz, the stocks would be down. They’re not trading on fundamentals right now.”


Source: commercial

Closing 40 Stores, Bon-Ton Sets Off CMBS Alarm Bells

Fittingly, Cyber Monday brought yet another downbeat omen for nationwide retail tenants.

The Bon-Ton Stores announcement this month that it will close 40 stores—15 percent of its total portfolio—could imperil a swath of more than a dozen securitized commercial mortgage deals, according to a report yesterday by Morningstar Credit Ratings.

Bon-Ton, a Milwaukee and York, Pa.-based company that operates department stores under six brands primarily in the Northeast and Midwest, announced the closures in its lachrymose third-quarter earnings call. Same-store sales fell nearly 7 percent compared with the prior year, and the company posted a net loss of $45 million.

“While results in the third quarter fell short of our expectations, we are taking more aggressive actions to fuel improved performance as well as strengthen our financial position,” William Tracy, Bon-Ton’s chief executive officer, said in a statement.

The retailer, which runs stores under names including Boston Store, Younkers and Bergner’s, has not yet announced which of its 260 stores will be shut down by the end of next year. According to Morningstar, 59 commercial mortgage-backed securities deals have exposure to one of Bon-Ton’s locations. Fourteen of those deals are now especially concerning, said Morningstar vice president Steve Jellinek, an author of the report.

“For a couple of these loans, Bon-Ton’s leaving is going to mean that multiple anchor stores have vacated” recently, Jellinek said. “That pretty much spells the death knell for the property—especially if you’re not in a prime location.”

That would mean trouble is ahead for the malls that led Morningstar to sound the alarm. Located mainly in small cities far from major metropolises, like Norfolk, Neb., Alexandria, Minn. and Genoa Township, Mich., some of the shopping centers that host a Bon-Ton store would see occupancies drop to troubling levels in the event of a closure. Without its Bon-Ton anchor, for example, the Schaumburg Mall in Schaumberg, Ill. would be only two-thirds leased. At the Wausau Center in Wausau, Wis., occupancy would drop to 53 percent if Bon-Ton closed its store there.

The concerns highlight the disconnect between how malls were originally designed and the preferences of modern shoppers.

“When malls were initially conceived and built, the thought was, ‘Let’s build them around the anchors. They’ll feed shoppers to the in-line tenants,’” Jellinek said. “Over the past five or 10 years, with increasing competition from a multitude of other shopping options, the anchors became less and less important.”

As multiple anchors close at a single mall, property managers may face a spiraling crisis of declining rent rolls.

Non-anchor “tenants have lease provisions that if one or two anchors close, the tenant has discounted rent for a period of time,” Jellinek said.

If the anchor spot isn’t filled, smaller tenants may even have the option to vacate their lease early, without penalty.

Some of the embattled CMBS transactions seemed doomed from the start. As its largest source of concern, Morningstar pointed to University Mall in South Burlington, Vt., which secures 44 percent of the Lehman Brothers-sponsored LBCMT 2007-C3 transaction. At underwriting, its scant debt service coverage of 1.14x “left it unable to withstand tenant turnover and declining rents,” Morningstar noted in the report.

Appraisers valued the shopping center at $44.8 million in July, down over 50 percent from the value allocated to the CMBS transaction.

But even deals underwritten in the more risk-conscious atmosphere that swept in after the financial crisis face a bleak path forward.

If the Boston Store at Southridge Mall in suburban Milwaukee were to close, it would be the third anchor tenant the site has lost in a year. Sears closed shop there in September, and Morningstar expects Kohl’s to wind down its location in the mall by the end of 2018.

Such closures can lead to a vicious cycle of decline for retail properties, according to Morningstar. Without much surplus lease income to speak of, managers have to put off re-investing in improvements to bring their properties up to 21st century standards.

“There’s often barely any profits to put back into the property,” Jellinek said.

The Morningstar analyst said he’ll be keeping a close eye on securitized shopping center loans as Bon-Ton announces its specific closures.

“We’ll be watching for same-store sales,” Jellinek said. “They haven’t been growing—in fact they’ve been negative—for a long time. The final shoe dropping would be [Bon-Ton’s] filing for bankruptcy.”


Source: commercial

$93M CMBS Loan on West Virginia Mall Sent to Special Servicing

The $93 million loan backed by the Charleston Town Center Mall in Charleston, W. Va., has been sent to special servicing, according to an alert yesterday from Fitch Ratings.

The 10-year term loan, which carries a fixed rate of 5.6 percent, had a securitized balance of $100 million, was originated by Morgan Stanley in September 2007 and was transferred to special servicer C-III Asset Management LLC on Tuesday due to imminent maturity default. It comprises nearly a quarter of the $392 million BSCMS 2007-T28 commercial mortgage-backed securities transaction—originally sponsored by the now defunct Bear Stearns.

The loan is secured by the 931,333-square-foot Charleston Town Center Mall—constructed in 1983 and located at 3000 Charleston Town Center Drive in downtown Charleston, W. Va. It features over 130 specialty shops across three levels of the building, according to information from the mall’s website.

In April, Sears—previously one of the mall’s largest non-collateral anchor tenants, occupying 179,199 square feet of space—closed its doors. Subsequently, the loan was marked as a “loan of concern” by Kroll Bond Rating Agency over heightened concerns about the fates of the location’s two remaining non-collateral anchor tenants, Macy’s and J.C. Penney, each occupying 118,864 and 121,517 square feet, respectively, according to information provided by Trepp.

The loan was then put on the servicer watchlist in June, and in July—as the loan neared it’s September 8, 2017 maturation date—the borrower claimed it was “making changes to the partnership, which they expect to complete concurrently with the loan maturity date” and anticipated it would have the wherewithal to be able to pay off the loan on time, watchlist commentary provided by Trepp shows.

Jeff Linton, a spokesman for Forest City Realty Trust, the property’s sponsor, said in an email statement: “As previously announced, Charleston Town Center is in the midst of restructuring their partnership.  Concurrent with those changes, ownership is evaluating the most efficient way to handle financing for the project.” Linton went on to say that the mall will continue to operate as usual. 

This marks the loan’s first trip to special servicing.


Source: commercial

$80M CMBS Loan on Maine Mall Sent to Special Servicing

An $80 million loan backed by Bangor Mall in Bangor, Maine has been sent to special servicing, according to an alert from Fitch Ratings.

The 10-year term loan was transferred to special servicer LNR Partners, Inc. on Tuesday due to imminent maturity default. It comprises just over 14 percent of the remaining collateral in the Morgan Stanley -sponsored MSC 2007-IQ16 commercial mortgage-backed securities transaction.

The loan is secured by Bangor Mall— located at 663 Stillwater Avenue in Bangor—a sprawling 658,827-square-foot retail center that was built in 1979 and is situated on 60-acres of land.

In January, the mall’s largest anchor tenant, Macy’s, which occupied 118,825 square feet, or nearly 22 percent of the property’s retail space, announced it was closing its doors. By June, the store had shuttered, according to watchlist commentary provided by Trepp.

Subsequently, Kroll Bond Rating Agency downgraded the mall’s performance outlook amid concerns that its other anchor tenants—Sears, which leases 105,817 square feet on a lease that will expire in October 2018, and J.C. Penney, which occupies 95,082 square feet on a lease set to expire in February 2019—were also struggling, according to information provided by Trepp.

Earlier this month, as the loan neared its October 1, 2017 maturation date, the borrower intended to reach out to potential lenders for refinance, but to no avail, according to Trepp. The loan, which was originated in 2007 with a rate of 6.1 percent, has been on the servicer watchlist since February 2016.

Although it was originated nearly a decade ago, the loan still remains at its origination balance of $80 million, according to Trepp. This marks the loans first trip to special servicing.

Bangor Mall, LLC, the entity that owns and operates the mall, did not immediately return a request for comment.


Source: commercial

Latest Round of Sears Closings Puts More CMBS Loans at Risk


Source: commercial