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Friday, 29 June 2018

Investors Challenged to Turn Class-B and -C Malls Around, Impacting Value of Others

The opportunistic investors that had purchased class-B and -C malls in recent years in hopes of turning them around have faced challenges executing their business plans. That's bad news for the legacy CMBS deals that hold a total of $2.5 billion of mall loans that are in special servicing.

Commercial Real Estate Direct Staff Report

The opportunistic investors that had purchased class-B and -C malls in recent years in hopes of turning them around have faced challenges executing their business plans.

That's bad news for the 56 legacy CMBS deals that hold a total of $2.5 billion of mall loans that are in special servicing.

Those investors, which include entrepreneurial companies such as Kohan Retail Investment Group, Mason Asset Management and Namdar Realty, each purchased tired malls that had served as collateral for distressed CMBS loans at prices that represented sharp discounts to their principal balances. Their strategies typically centered on re-tenanting their properties, relying on their ability to charge lower rents than would be the norm because of the low prices they paid for their properties.

But that strategy, as simple as it sounds, can be tough to execute because of the continued fall-out among retailers.

Take, for example, the Lycoming Mall in central Pennsylvania that was purchased by Kohan two years ago for $26.35 million. The loan wasn't tied to a CMBS trust. Rather, it was a non-core mall owned by Pennsylvania REIT. In 2015, the property was 94.5 percent occupied, with inline retailers generating $274/sf in sales. Since buying the 806,000-square-foot property, Kohan has endured the departure of anchors Macy's, JCPenney and Sears. And more recently, Bon-Ton Stores Inc., which filed for bankruptcy in February, decided to shutter all its stores.

Meanwhile, Kohan had partnered with Washington Prime Group to make an unsuccessful bid for the retailer. The Lycoming mall's only remaining anchors are Burlington and Dick's Sporting Goods.

The buyers of the Regency Square Mall, a 1.4 million-sf property in Jacksonville, Fla., had more success. The property previously had served as collateral for an $84.2 million mortgage securitized through Wachovia Bank Commercial Mortgage Trust, 2003-C7 and 2003-C8. Mason had partnered with Namdar to pay $13 million for the property.

The fortunes of the 46-year-old property turned south when Sears decided to shutter its anchor space and Dillard's converted its space into an outlet retail center. A third anchor, Belk, shuttered its doors as well.

The venture converted part of the mall into the International Décor Outlet, which it had hoped would be occupied by home furnishings and home improvement retailers. It also sold the Belk space to a church for $7 million, recouping a big slug of its initial investment capital. But it faced issues getting its Décor Outlet leased as prospective tenants complained about leaking roofs and other poor conditions.

"The hits keep coming among retailers," explained Tom Dobrowski, who leads an NKF Capital Markets team that is among the most active sales brokers of class-B malls in the country. He explained that the loss of an anchor typically affects a property owner's ability to fill up any vacant inline space, which generally accounts for most of a property's rental income.

His team is currently marketing the Killeen Mall near Fort Hood in Texas that backs an $82 million loan that was securitized through Credit Suisse Commercial Mortgage Trust, 2008-C1. And it's offering the Lakeshore Mall in Sebring, Fla., on behalf of BV Belk Properties Inc., which had acquired it in 2014 from CBL & Associates Properties Inc.

Meanwhile, most leases governing malls' inline space include co-tenancy clauses that allow tenants to reduce the rent they pay or otherwise rework terms of their agreements if an anchor or two leave. "The economics could get tough," Dobrowski said.

Tabani Group, a Dallas value-add investor, had purchased the Eagle Ridge Mall in 2013 for $7 million. The 660,358-sf property previously was owned by GGP Inc. and had been encumbered by a $44.6 million loan that was securitized through Wachovia Bank Commercial Mortgage Trust, 2005-C22. At the time, the mall was 82.3 percent occupied and anchored by Dillard's, Sears and JCPenney. It also had a 12-screen movie theater and a 32-lane bowling alley.

Tabani had aimed to redevelop the property in order to draw additional retailers. But then the property lost its Sears, prompting the investor to change plans. It recently sold the property for $7.8 million to Stockbridge Enterprises, a group of high net-worth investors that plans to continue operating the property as a mall.

The challenges opportunistic investors have faced in turning struggling malls around is having an impact on the market. Tired malls can still be sold, of course, but only at super-low prices. Capitalization rates, a metric generally used to determine pricing for most other property types, are eschewed in the world of class-B and -C malls.

The legacy CMBS universe includes $3.6 billion of mortgages against 69 malls, with 49 of those having a balance of $2.5 billion, in special servicing.

Large Distressed Mall Loans in Legacy CMBS Deals

Name of Mall


Bal $mln


Special Servicer


Independence Mall

Independence, Mo.


WBCMT 2007-C33



Westfield Chesterfield

Chesterfield, Mo.


LBUBS 2006-C6

C-III Asset Management


Lakeside Mall

Sterling Heights, Mich.


COMM 2005-LP5, GECMC 2005-C1



Mall of Acadiana

Lafayette, La.


BACM 2007-2



Central Mall Portfolio

Texas, Okla.


MSC  2005-IQ9



Rushmore Mall

Rapid City, S.D.


BACM 2006-3



Mall at Stonecrest

Lithonia, Ga.


BACM 2005-1


Term extension

Boulevard Mall

Amherst, N.Y,


GCCFC 2007-GG9

LNR Partners


Killeen Mall

Killeen, Texas


CSMC 2008-C1


REO/Under Contract

Bangor Mall

Bangor, Maine


MSC 2007-IQ16



Lakeforest Mall

Gaithersburg, Md.


BSCMS 2005-T20



Shadow Lake Towne Center

Papillion, Neb.


MSC  2008-T29


Potential DPO

Sierra Vista Mall

Clovis, Calif.


COMM 2006-C8



Milford Crossing

Milford, Conn.


MSC 2007-IQ16



Collin Creek Mall

Plano, Texas



Midland Loan Services

REO/On Market

The CMBS 2.0 universe includes $46.6 billion of financing against 389 properties that either have the word mall in their name or are classified as malls on the Trepp LLC system. A dozen of those, with a balance of $453.7 million, also are in special servicing. The biggest of those is the $139.8 million mortgage, securitized through Wells Fargo Commercial Mortgage Securities Corp., 2012-LC5, against the Westside Pavilion in Los Angeles. The property is owned by a venture of Macerich Co. and Hudson Pacific Properties, which plan to redevelop it. The loan is expected to be defeased, or replaced by government securities, by the end of the year.

Distressed Mall Loans in CMBS 2.0 Deals

Name of Mall


Bal $mln


Special Servicer

Status/Reason for Transfer

Westside Pavilion

Los Angeles


WFCM 2012-LC5

Rialto Capital

Imminent Default

Oakdale Mall

Johnson City, N.Y.


WFRBS 2011-C3

Rialto Capital

Imminent Default

Towne West Square Mall

Wichita, Kan.


MSC 2011-C2

Strategic Asset Services

Imminent Default

McKinley Mall

Buffalo, N.Y.


COMM 2014-LC15, COMM 2014-CR14

Rialto Capital

Imminent Default

Ridgmar Mall

Fort Worth, Texas


COMM 2014-UBS5

Rialto Capital

Imminent Default

Salem Center

Salem, Ore.


JPMCC 2012-LC9

Rialto Capital

Maturity Default

Susquehanna Valley Mall

Selinsgrove, Pa.


COMM 2012-LC4

Rialto Capital

Imminent Default

Square 95

Woodbridge, Va.


COMM 2015-CR25

LNR Partners


Turnpike Mall

Augusta, Maine


JPMCC 2011-C3

Midland Loan Services

Payment Default

The same can't be said of the Oakdale Mall, an 851,498-sf property near Binghamton, N.Y., of which 708,695 sf backs a $50.7 million mortgage securitized through WF-RBS Commercial Mortgage Trust, 2011-C3. The property lost its Macy's and Sears anchors last year and this year suffered another blow as its Bon-Ton location is being shuttered, leaving only Burlington and JCPenney as anchors. The property is owned by the same development team, including Vornado Realty Trust's Steven Roth, that developed it in 1965.

Morningstar Credit Ratings pegs the property's value at $42.7 million.

Comments? E-mail Orest Mandzy, or call him at (267) 327-4281.


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Data Digest







Top Bookrunners Domestic, Private-Label CMBS - 2017
Investment Bank #Deals Vol$mln MktShr%
Goldman Sachs 17.59 11,819.34 13.68
JPMorgan Securities 14.52 10,968.11 12.70
Citigroup 12.04 10,012.71 11.59
Wells Fargo Securities 14.02 9,936.06 11.50
Deutsche Bank 12.55 9,879.74 11.44




cppichart FP



CMBS 2.0 Spreads


Top CMBS Loan Contributors - 2017
Lender #Loans Vol$mln MktShr%
Goldman Sachs 146.89 11,719.34 13.63
JPMorgan Chase Bank 117.68 10,114.14 11.76
Deutsche Bank 198.48 9,689.97 11.27
Morgan Stanley 166.18 8,539.78 9.93
Citigroup 199.05 8,088.24 9.41





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