Monday, March 30, 2009

Simon Property Group Defaults On Mall Loan

And so it begins. Newsday reports what many were expecting: "The owners of the Mall at The Source in Westbury have defaulted on a $124-million interest-only balloon loan." The data was caught by Zero Hedge favorite TREPP: this could be the beginning of the great unravelling for even the heretofore "healthy" REITs.
The mall - where stores of bankrupt retailers Fortunoff and Circuit City are liquidating their goods and where Steve & Barry's once had a location - had a 10-year-old balloon loan that matured on March 11, said Thomas Fink, senior vice president of Trepp, which tracks the performance of commercial real estate loans that have been securitized. The loan servicer, LNR Properties of Miami, listed the loan as a nonperforming mature balloon loan, he said, which means the servicer does not expect the balance of the loan to be paid.

It originally was issued in 1999 by Nomura, and the owner of the mall is listed as W&S Associates. Records from the New York State Department of State show the address of W&S as the Simon Property Group, owner of the Roosevelt Field Mall, Walt Whitman Mall and Smith Haven Mall. The records were unclear regarding the ownership composition of W&S.

"What's been happening is that more and more commercial properties have been having trouble refinancing balloon payments that are coming due," Fink said. "There's no market right now or the market is not giving them the proceeds or the rate they want to refinance the mortgage."
This is a story we will be following closely as it fits closely with our expectations that the CRE default explosion will wipe out the bulk of "equity" value at highly leveraged public REITs.


The oracles at RBC have decided to go all out here, and have lowered their target price on SPG from $80 to $70, which is only a 100%+ rise from current levels. Talk about a gutsy call. Sphere: Related Content
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Anonymous said...

What is happening is not necessarily driven solely by the problems in the debt markets. Simon has a mall with three big stores or anchor tenants gone bust. This will trigger more vacancy as tenants excercise early termination rights or don't renew. There will surely be much more vacancy than just the big spaces and the little spaces are what generate the income stream. So the income stream is unreliable and obviosly Simon isn't willing to pay off the debt either, for the same reason. With so much unreliable or uncertain, Why would anyone want to see a bank, or other lender make a loan? Plus Simon knows that the mall could be worth nothing more than the dirt it sits on, less the restrictions on redevelopment, demolition etc. This wont be the first loan Simon has defaulted on or the first asset it gives back to its lender. This is non recourse lending. Good thing it was an old loan, it wasn't refinanced using irreplaceable valuations from the 2006-7 mythical period or the loss could be much worse.

Anonymous said...

I think you mean the target for SPG.

$70 a share would be a bit more than 100% for GGP.

I was really hoping this rally had a little more life left in it. I had a lot more SRS to buy.

Anonymous said...

Simon's a stronger company for walking away from the project - it won't be the last such decision, even for a "healthy" REIT.

Speaking of, can you get your hands on the UBS report of the "bottom 300" malls that will go away (all my UBS contacts have gone the way of Circuit City...)? I'm curious if they list only the dreck malls or the non-mall lifestyle centers; the latter will unravel so fast, the malls will look healthy.

eh said...

Simon's a stronger company for walking away from the project...

I wonder if future potential (non-recourse) lenders will see it that way.

Clotario said...

Ugh. As a worker whose company was taken over by Simon in 1998 (Corporate Property Investors) and who left in disgust soon after, I can only say that they are the very epitome of money grubbing scoundrels and their burning of a creditor is entirely consistent with their corporate philosophy.

Anonymous said...

Yes Simon is using its strength and maintaining its cash for stronger postioned malls and yes, they have screwed lenders before and will do it again and no, lenders won't change their stripes either, they might be conservative on new loans in the next couple of years, but as soon as we see a more standard functioning market, lenders will again extend credit to Simon, and to Trump and a long list of others.

Anonymous said...

Simon is not dealing with exsisting retailors in order to keep the spaces filled. Unlike most other malls Simon take a hard line aproch. Is will leave them with more spaces open and less people intrested in simon malls.