Friday, July 20, 2018

Capital Markets Not Ignoring the Retail Sector

While office and hotel properties have been favorites in the capital markets this year, the turbulent retail sector has not been left out. That's been the case this week with details emerging on major mall refinancings from two retail real estate investment trusts.

GGP, formerly General Growth Properties, has completed a $500 million refinancing of Christiana Mall in Delaware; and details on a $450 million refinancing of the Macerich-owned Broadway Plaza have also come to light.

Out of 50 single-borrower, mortgage-backed bond deals totaling $25.8 billion issued this year, retail properties account for $4.45 billion, or 17 percent, according to CoStar data.

The property sector has accounted for even bigger share in multi-borrower deals issued this year, almost 26 percent of more than $13 billion, according to Kroll Bond Rating Agency, known as KBRA.

GGP is the latest to take advantage of interest in securitizing single-borrower deals. Institutions including Barclays Bank, Deutsche Bank, and Société Générale provided $550 million in financing on GGP's interests in 533,772 square feet of Christiana Mall, a mostly single-story, 1.3 million-square-foot, super-regional mall located directly off Interstate 95 in Newark, Delaware, 40 miles southwest of Philadelphia's central business district. The fixed-rate loan requires interest-only payments and has a 10-year term.

GGP owns the mall in a joint venture with Morgan Stanley Prime Property Fund.

The mortgage loan was used to refinance $226.3 million of existing mortgage debt that was previously securitized in a 2011 bond offering and coming due in 2020. The new loan also returned $309.8 million of equity to GGP and Morgan Stanley.

Anchoring the mall are Nordstrom, Cabela's, Target, Macy's, JCPenney and a 12-screen Cinemark Theater. They make up most of the remainder of the square footage.

Christiana Mall is a major mall between Philadelphia and Baltimore, and a dominant mall in Delaware. As a result, the asset can attract more than 20 million visitors annually, with an estimated 50 percent from out of state. The mall's location, about 10 miles from three different state lines, allows out-of-state shoppers to benefit from Delaware's tax-free retail shopping.

A $400 million portion of the loan is being securitized in a new bond offering.

KBRA is one of the agencies rating the bond offering. The results of its analysis yielded a KBRA net cash flow of $42.5 million. To value the property, KBRA applied a capitalization rate of 7 percent to arrive at a value of $606.9 million.

Meanwhile, Macerich turned to life insurers to refinance its Broadway Plaza, an open-air lifestyle retail center in Walnut Creek, California.

MetLife Investment Management and Northwestern Mutual provided $450 million in financing for the 958,000-square-foot retail hub anchored by Nordstrom, Neiman Marcus and Macy's. The mall is 98 percent leased with sizeable new additions under development. The center is in close proximity to some of the most affluent neighborhoods in the San Francisco Bay Area.

The 12-year loan bears interest at an effective rate of 4.19 percent and matures in April 2030. Macerich used its share of the proceeds to pay down its line of credit and for general corporate purposes. An affiliate of Northwestern Mutual Life is a joint venture partner in the mall.

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