The press had a field day this week reporting that a Pennsylvania mall that was foreclosed on after its owners failed to repay $143 million was auctioned off for $100. The 1.1-million-square-foot Galleria at Pittsburgh Mills was secured by a CMBS conduit loan with additional mezzanine financing. The mezzanine loan defaulted in 2011 after steadily declining occupancy in 2007-2010. In 2011, the CMBS loan was modified and had its maturity date extended to 2016. The modified loan remained current with a lockbox in place. However, occupancy continued to decline — to 75% in 2012 from 85% when the loan was originally closed. In 2014, Sears announced it was closing its store at the mall in 2015, but the loan still remained current. However, the loan could not be paid off at maturity in 2016. Wells Fargo, the trustee for the CMBS loan pool, then executed on the foreclosure.
Many commented on social media that they could have put together a couple of beer buddies to rustle up a few more hundred dollars to be the proud owners of the mall. Others suggested that some sort of illegal manipulation took place. What really happened is that the most recent appraisal on the property, completed a few weeks ago, suggested the mall was worth $11 million. Wells put in a base bid of $100, and if any other bidders had shown interest, Wells would have bid up to $11 million to secure the property. The property is not worth $100. Wells will now sell the property at its real value in the $11-million area, which is not great compared with original $143 million, but not $100.