There is cautious optimism stirring in the world of shopping malls, as lenders are showing a growing willingness to finance stabilized properties with strong cash flow, according to data compiled by Trepp. This signals some good news for a sector long beleaguered by challenges. Yet, this hopeful outlook applies only to a select group of malls. Many others, especially those that have lost one or more anchor tenants or several inline stores, continue to grapple with serious difficulties as a maturity wall looms on the horizon.
While much of the market’s anxiety has centered on office and multifamily properties facing upcoming loan maturities, Trepp’s data sheds light on a less-discussed area: the retail commercial mortgage-backed securities loans tied to shopping malls. Within the next year, 210 mall properties face $18.83 billion in CMBS loans coming due. Of this amount, $5.23 billion—about 28 percent—is classified as nonperforming, and $8.88 billion, or 47 percent, are under special servicing. Despite these concerning figures, Trepp notes that many of these troubled loans are expected to be worked out rather than resulting in foreclosures.
Breaking down the $18.83 billion, $11.3 billion consists of fixed-rate loans with coupons averaging 4.533 percent, while the remaining $7.53 billion consists of floating-rate loans. Even though the fixed-rate loans carry interest rates 200 to 250 basis points lower than current market levels, Trepp suggests most of this debt should be refinanced successfully. Supporting this optimism are the loans’ average debt service coverage ratios of 2.01x, indicating that the collateral properties generate just over twice the cash flow needed to meet debt obligations. The median DSCR stands at a slightly lower but still solid 1.92x.
A second tranche involves 110 loans totaling $9.92 billion with maturities also due within 12 months. Like the first group, many under special servicing are expected to be resolved. However, 41 with a combined balance of $2.9 billion have already moved into foreclosure or real estate-owned status. Among these, 17 loans amounting to $864.54 million are REO, meaning the trusts now own those mall properties outright.
The challenges facing struggling malls are exemplified by the Park Place Mall in Tucson, Arizona. Backing a $156.87 million mortgage, this mall was relinquished via a deed-in-lieu of foreclosure. After losing its Sears anchor in 2018, Park Place partially repurposed some space into an entertainment venue, Round1, and converted much of the rest into self-storage. The departure of Macy’s the following year left Dillard’s as the only anchor tenant, although Dillard’s owns its store outright. Despite these setbacks, the mall maintained a 93% occupancy rate and generated a net cash flow of $4.06 million in the first quarter, projecting an annual figure slightly below its 2019 total of $16.51 million.
That said, malls demonstrating respectable performance have attracted refinancing offers. For instance, Morgan Stanley provided a five-year, $120 million loan on Ridgedale Center Mall in Minnetonka, Minnesota, at an interest rate of 7.094 percent. Notably, Ridgedale’s inline stores, excluding the Apple Store, reported strong sales of $547 per square foot. Similarly, Mesirow extended $78 million in financing for Cross Creek Mall in Fayetteville, North Carolina, at a 6.859 percent rate. This mall benefits from key anchors such as Belk, H&M, JCPenney, Macy’s, and Rooms to Go, with inline stores achieving $487 per square foot in sales.
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