Banks And Other Lenders Beginning To Force Delinquent Mall Owners’ Hand

Lenders had been more lenient with commercial real estate owners when it came to payments in recent months due to the COVID-19 pandemic, but now want them to start paying what’s owed, The Wall Street Journal reports.

Past concessions included rent deferrals to retail property owners in hopes that cash flow would pick back up after the initial lockdowns ended, but the opposite has happened. The COVID-19 pandemic has forced more stores to close—even major retailers like Lord & Taylor filed for bankruptcy and closed all 38 of its stores. Such closures have led to landlords missing payments, but some bank and other lenders are starting to demand payments.

The Saks Fifth Avenue store at Miami’s Dadeland Mall is another example. The store’s lender foreclosed on the property owner after it defaulted on its April mortgage payment and missed all of its subsequent payments, according to court documents.

“The owner is disappointed that in the context of a global health crisis the lenders would choose litigation over cooperation but understand the background and continue to diligently pursue an amicable solution,” a Hudson’s Bay, owner of the Saks Fifth Avenue Stores, spokeswoman said.

Other lenders are concerned about rapidly decreasing retail property values, which are dropping by as much as 75% around the U.S., according to The Wall Street Journal. Lenders have noted they feel they have to begin foreclosure sales so they can get the money they’re owed. Meanwhile, mall owners are filing lawsuits against retailers who they believe can pay rent, but haven’t. Other tenants have asked courts to let them out of their leases.

There’s also a Canadian bank that started foreclosure proceedings against a Midtown Manhattan property that Harbor Group International owns. The property had a $40 million mortgage, and the borrower has been in default since May, per a court filing.

Looking For Alternative Solutions

There are some mall landlords that have lost hope of recouping money owed. The Park Plaza Mall owners in Little Rock, AK stopped their loan modification talks during the spring and turned the property back over to their lender. Other owners have explored turning malls into residential buildings or warehouses, which are currently more sought after properties. Unfortunately, such a conversion could result in significantly decreased valuations—as much as 60% to 90% compared to the properties’ pre-COVID-19 levels, according to Barclays PLC research analysts. Just 15% of mall conversions would yield a better recovery rate, the analysts said.

There are also mall investors that are pushing landlords to sell properties instead of trying to raise the lost funds. Investors of Unibail-Rodamco-Westfield SE, which owns properties in Europe and malls in San Diego and New Jersey said the company’s recent $4.1 billion rights issue would dilute its share price significantly. Investors feel the company should sell its U.S. mall portfolio instead.

“The Westfield acquisition burdened the company with debt, distracted management and was a gross misallocation of resources,” Léon Bressler, a former chief executive officer of Unibail, the predecessor to URW and leader of the group of activist investors said.


Source: Connected Real Estate Magazine