With Sears, Macy’s and JC Penney closing hundreds of stores, mostly in older malls in less-desirable locations, the divide between good malls and bad malls is widening. The best malls, often owned by Simon Property Group, Taubman Centers, Inc. and Westfield LLC, have lenders knocking down their doors to provide financing. But older, less-desirable Class B malls are struggling to find financing to take out maturing loans.
Lenders are afraid of Class B malls because deteriorating performance is resulting in appraisal value reductions, maturity defaults and other payment defaults, according to information provided by Trepp. For example, River Valley Mall, a Class B mall located in Lancaster, Ohio, had its appraisal value cut from $70 million when the loan was written to $18.4 million today. Recently, the Galleria at Pittsburgh Mills mall sold at auction for $100 to the existing lender, based on an estimated value of $11 million as opposed to its original loan balance of $143 million. Another example is Eastern Shore Centre, a Class B regional mall located in Spanish Fort, Alabama. The property, lender-owned after being foreclosed in 2015, was originally appraised for $99 million and is now worth an estimated $19.25 million.
One last example is Sunset Mall, a Class B regional mall located in San Angelo, Texas. The mall, originally valued at $39.6 million, recently went into maturity default despite a net cash flow DSCR of 1.54x on $3.2 million of net cash flow. The loan payoff was $27.7 million, so the debt yield was a very healthy 11.5%, a level that is typically very easy to refinance. But the property could not obtain a new loan, and a new appraisal valued the property at $16.4 million.
With one bad Class B mall story after another, the entire sector is being painted with a broad brush. Any diamond-in-the-rough good story will have to be very well told in order for the owner to obtain financing.