The retail real estate industry was jarred over the recent string of receivership and foreclosure news involving major shopping centers -- which was unsettling at a time when the industry was hoping for positive news on consumer spending during the recent holidays and a hopeful beginning to recovery in 2010.
For insight on this issue, CoStar interviewed Greg Maloney, president and CEO of Jones Lang LaSalle Retail, whose firm has been appointed as a receiver or is dealing with several retail properties in foreclosure. In December 2008, Jones Lang LaSalle announced it had been appointed as the receiver for 10 retail properties. Today, the firm has 25 properties in receivership status that it is managing while it either tries to sell or reposition foreclosed properties.
Most of 2009 was marked by lenders and special servicers trying to get their arms around properties struggling with their loans, sorting out the most pressing problems, and attempting to tackle those in a "very thoughtful and hopefully profitable way," said Maloney. He said the timing of foreclosures and receivership announcements occurring at the end of the year was largely driven by year-end decisions by their lenders. "Servicers and banks were saying, 'if we're going to close these things out in 2010, lets foreclose on what we can by the end of the year.' "
Maloney expects this activity to continue well into the first part of this year as lenders that have decided to foreclose will want to do so "sooner rather than later." In an effort to keep costs down and speed the process along, Maloney expects many lenders and servicers will opt to "bypass receivership, foreclose on the subject property, put it in their REO portfolio, hire somebody to come in and secure the asset, and then turn it over to their investment sales people to get rid of it."
The exceptions that are more likely to first go into receivership, said Maloney, will be the very distressed assets, such as unfinished properties caught in disputes between the borrower and lender, and retail properties hit hard by a large number of vacancies.
With the caveat that there can be many circumstances affecting the strategy lenders and servicers decide to take, Maloney said, "Receivership is generally a very expensive process that [lenders] usually put a very troubled asset that has lost a lot of its value and they don't want to take on the liability risk at this time."
However, if the property is simply under-performing without a great deal of liability exposure, the lender might as well just foreclose on it, he added.
Regarding retail loan default trends, Fitch Ratings recently reported that the CMBS loan delinquency rate rose again in November -- reaching 4.29%, which is up 43 basis points from the month prior. While delinquency rates were up in November among all property types, the retail delinquency rate rose only slightly, from 3.55% in October to 3.81% in November, accounting for $5.2 billion in delinquent retail CMBS loans. This rate is up from only .63% delinquency in November 2008.
However, Maloney said the CMBS loan default rate is no longer the key driver of shopping center foreclosures and receiverships. "The majority of the troubled retail CMBS loans have already been turned over to the special servicer or lender. There will still be more. However, the real traunch is the non-CMBS stuff, which is really starting to come up in 2010 and 2011. These are loans that are just going to mature and the lenders are very concerned because most of the properties have lost value. The property is worth less than what they loaned on it two to five years ago. That is what's really going to take place in 2010 -- a lot of borrowers and lenders, even more than before, trying to come to some sort of agreement to extend the loans and keep things going," or turn over the keys, said Maloney.
In the receivership process, Maloney said that in most cases, a lender hopes the receiver will stabilize the property, finding tenants for vacancies and keeping current tenants in place, so that it ultimately can be sold out of receivership, rather than taking it through the foreclosure process.
But that is easier said than done in today's market as potential buyers are still reluctant to execute sales at current pricing levels, said Maloney. "We have them in the market and I think we're very close to it. I think in the first quarter you're going to see a lot of the assets starting to trade hands -- especially out of receivership and foreclosure."
In most cases, especially in the first half of this year, Maloney said he expects sale prices to be low -- in many cases well below their previous purchase prices.
"I think the properties we're going to see sell first are the ones that have lost a lot of occupancy and NOI," said Maloney, adding that he expects a large number of distressed properties brought to market in the beginning of this year with the hope of making a quick sale and reposition for recovery by the end of 2010.
According to CoStar information, the fact that the number of retail properties in distress continues to rise supports Maloney's expectation. In the Sept. 24 CoStar article, " Recession Levies Hefty Punishment on CRE Property Values
," Mark Heschmeyer reported that there were nearly 9,700 shopping centers in the U.S. under "distress" -- based on a tally of retail centers with vacancy rates of 60% or higher. As of this week, that number is up to 10,400 centers under distress, representing a 7.3% rise in little more than three months.
If, as Maloney expects, the industry sees more retail receivership work and foreclosures this year, is this work a good replacement for the lack of transaction income?
"I think we all thought we were going to get a lot more of this work, especially in retail, than we have," Maloney said, adding that fees from receivership and management services of these properties "is not enough to make a difference."
From a brokerage standpoint, Maloney said the transactions in receivership typically are renegotiations, not new lease deals. And given the difficult sales environment, the small number of sales that do go don't generate a great deal of commissions.
"It has not been a windfall," he explained. "The amount of business has not been big enough to spin off and make into a separate division, for example," adding that JLL simply treats the work as an added client service.
The following case serves as a good example of the challenge Maloney described in selling distressed retail centers out of receivership. In the beginning of 2009, Jones Lang LaSalle Retail was appointed receiver for four regional malls that the Lightstone Group had acquired for $108.5 million in September 2004 from Pennsylvania Real Estate Investment Trust (PREIT). The transaction was financed with a $73.6 million mortgage held by JP Morgan Chase. Lightstone had been in default on the loan since September 2008. Details on the four malls, which total 1.88 million square feet follow:
- Bradley Square Mall is a 335,000-square-foot regional mall located in the Chattanooga area. The mall is anchored by Belk, JC Penney, Big Kmart and Sears.
- Martinsburg Mall is a 556,000-square-foot regional mall located in Martinsburg, WV, just off I-81. The mall is anchored by Bon-Ton, JC Penney, Sears, and Wal-Mart.
- Mount Berry Square Mall is a 478,000-square-foot mall located in Rome, GA that is anchored by Belk, JC Penney, and Sears.-
- Shenango Valley Mall is a 509,000-square-foot mall located in Hermitage, PA. The mall is anchored by Macy's, JC Penney, and Sears.
In May, Jones Lang LaSalle was appointed to market the malls for sale -- individually or as a portfolio.The first news of any possible sale of any of these malls surfaced in November -- the Martinsburg Mall is said to be under contract by Mountain State University. (for more on that, click here.)
These were not the first malls Lightstone defaulted on. In February 2008, a CMBS loan backed by the company's Macon Mall in Macon, GA and Burlington Square Mall in Burlington, NC, was put into special servicing. Jones Lang LaSalle was appointed as receiver of those malls as well. JLL is also marketing the properties for sale -- at drastically lower prices than their last purchase price.
Lightstone had acquired the two malls from Colonial Properties Group in summer 2005 -- $133.5 million was paid for the 1.4-million-square-foot Macon Mall and $32.5 million was paid for the 431,000-square-foot Burlington Square Mall. Since the original sale, these malls have lost several anchor tenants, with the Burlington Square Mall only 44% occupied and the Macon Mall only 66% occupied, according to current CoStar information. Also according to CoStar, JLL lists a modest asking sale price of $10 million for the Burlington Square Mall. News of a buyer has yet to service on either mall.
RECENT RETAIL RECEIVERSHIP / FORECLOSURE NEWS
Two Centers Developed by Monroe Prestige Group Go Into Receivership
, published Jan. 8, 2010
Two shopping centers in South Florida recently went into receivership. Andrew Bolnick of Andrew Bolnick & Associates has been appointed by Bank of America to serve as receiver for Parkland Commons, located on University Drive in the Parkland community of northwest Broward County, as well as 127th Street Shopping Center, which is located on Biscayne Boulevard in North Miami.
Developed by Monroe Prestige Group, Parkland Commons was completed in third quarter 2008. Anchored by a 45,600-square-foot Publix supermarket, the neighborhood shopping center also includes a bank, day spa, nail salon and dry cleaner. According to CoStar Property, more than 26,000 square feet of the 90,000-square-foot center remains available, leaving it only 71% occupied.
Also owned by Monroe, the 127th Street Shopping Center was built in 1959 and totals 120,000 square feet. Anchored by a 43,600-square-foot Publix, other tenants include GNC, Mail Boxes Etc., H&R Block and more. Monroe had plans to redevelop the property.
Capmark Files $290M Foreclosure on High Street at CityNorth
, published Jan. 6, 2010
CityCenter of CityNorth, owned by Related Urban (a joint venture between Related Companies and Klutznick Company), is the first phase, 70-acre, mixed-use portion of the 144-acre master planned CityNorth "urban community" located at 56th Street and Loop 101 in Phoenix's Northeast Valley. On December 30, Capmark Finance filed foreclosure proceedings on the first phase of CityNorth, claiming more than $290 million was owed on the project. For the full story, follow this link.
Poag & McEwen Lifestyle Center in Colorado Goes into Receivership
, published Dec. 31, 2009
In Denver, the Miller Frishman Group (MFG) announced that Andrew Miller, Principal, has been appointed by the court as receiver for the Promenade Shops at Centerra. The lender for Promenade Shops, a consortium of seven banks, began the foreclosure process on the lifestyle center in November when an agreement to extend or refinance the loan on the property could not be reached. For the full story, follow this link.
Cocowalk Shopping Entertainment District Facing Foreclosure
, published Dec. 31, 2009
Cocowalk, the well-known main-street style open-air shopping center that is the star of Coconut Grove, Florida's downtown shopping, dining and entertainment district, is facing foreclosure in the neighborhood of $97.6 million. On December 21, Bank of America, represent a CMBS fund, filed the foreclosure action against PMAT Cocowalk, the ownership entity of Cocowalk. For the full story, follow this link.
1.1M-SF West Oaks Mall Sold by Special Servicer for $87M Less Than 2005 Acquisition Price
, published Dec. 16, 2009
Pacific Retail Capital Partners acquired the approximately 1.1 million-square-foot West Oaks Mall in Houston for $15 million through marketing conducted by HFF for special servicer LNR Partners. The principals of Pacific Retail Capital Partners - then with Somera Capital - previously purchased the mall in 2003, made substantial renovations and sold it in 2005 for $102 million to Investment Properties of America. For the full story, follow this link.
Following $43M Foreclosure by Bank of America, Nature Coast Commons Put into Receivership and onto Auction Block in First Quarter 2010
, published Nov. 10, 2009
On April 15, Bank of America filed a lawsuit in the Hernando County, Florida Circuit Court to foreclose on the $43 million loan Opus South had on Nature Coast Commons, a 325,000-square-foot shopping center located on US Highway 19 at Wendy Court in Spring Hill, Florida. On May 27, Magnum Management Services of Boca Raton was appointed as receiver and manager of Nature Coast Commons. Magnum is also the firm Bank of America appointed to solicit bids for a Stalking Horse Buyer to acquire Nature Coast Commons, which is subject to a Section 363 Bankruptcy Sale in the first quarter 2010. For the full story, follow this link.
Bank of America Forecloses on; Seeks Sale of Babcock & Brown's Westgate Mall
, published Oct. 26, 2009
Bank of America foreclosed on Babcock & Brown's Westgate Mall in Brockton, Massachusetts (between Boston and Cape Cod) and hired the Boston office of CB Richard Ellis to evaluate and eventually broker the hopeful sale of the property. For the original story, follow this link.
Receivers Appointed for Shopping Centers in the Silicon Valley, Los Angeles, Inland Empire, Houston, and South Florida
- UPDATE: According to Dec. 18 articles in Enterprise News and the Boston Globe, an auction was held that didn't go as well as hoped. Reportedly, New England Development of Newton, MA (the firm that sold the mall to Gregory Greenfield in 2004 for $58.6 million) bid $20 million for the mall, which was not accepted as it did not meet the $51 million remaining on the mortgage. As a result, Westgate Brockton Limited Partnership (the pool of investors that made up the original mortgage lending group) took back the mall.
, published Oct. 13, 2009
During the first couple weeks of October, news on five shopping centers going into receivership surfaced. These include Sunnyvale Town Center, a 36-acre project in Sunnyvale, CA that had halted construction; University Village in Riverside, CA; La Puente Pavillion in La Puenta, CA; Park Plaza Retail Center in Katy, TX; and Yamato Plaza in Boca Raton, FL. For details on these receivership appointments, click here.
1.7M-SF Northwest Plaza Loses Nearly All Anchors, Foreclosed on and Bought Back by Lenders for $30M
, September 2009
In June 2006, Santa Barbera, CA-based Somera Capital Management with joint venture partner Zelman Development of Los Angeles, bought Northwest Plaza from Westfield Group for $45 million. The transaction was financed with a $29.95 million loan provided by RBS Greenwich Capital.
The JV hired General Growth Properties to lease, manage and redevelop the mall, which is 1.7 million square feet and located in St. Ann, MO. At the time of sale, the mall was anchored by Famous-Barr (later became Macy's), Dillard's, Sears and Steve & Barry's.
In Sept. 2007, Somera and Zelman were approved for a $249.5 million redevelopment plan, which included $96 million in public assistance and was set to add 480,000 square feet of new office space and create more exterior entrances for the mall. In February 2008, the JV put the mall back up for sale -- no sale resulted and financing for the redevelopment could not be secured.
Following the loss of Dillard's and Steve & Barry's, the mall's occupancy was said to have plummeted to 20%, and as a result, Northwest Plaza was foreclosed on September 1, 2009. St. Ann Shopping Center LLC, a holding company formed by institutional investors led by Wachovia/Wells Fargo, took over ownership o the mall for the $29.95 million outstanding loan amount.
Adding to the mall's troubles, Macy's announced January 5, 2010 that it would close its 240,000-square-foot Northwest Plaza store by March.
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