Simon Moves To Give Up Philadelphia Mall: Retail real estate investment trust Simon Property Group is working with lenders to turn the title over to its 1.21 million-square-foot Philadelphia Mills Mall rather than pay off debt that was set to come due this month.
The property backs $103.7 million in outstanding commercial mortgage-backed securities debt spread out between two 2007 deals, JPMorgan 2007-LDP11 and Goldman Sachs 2007-GG10, according to the latest monthly bondholder report for the Goldman Sachs deal. The special servicer on the loan is said to have ordered third-party reports and is coordinating the title transfer.
The loan was originally transferred to the special servicer when the borrower did not pay off by a June 2019 maturity date. It was modified for the second time in August 2019 with loan maturity extended by five years until June 2024, according to Morningstar Credit.
The property was last appraised at $201 million. However, that occurred in 2012 during the first stint at the special servicer, and the estimate is now over 10 years old. In today’s environment, the property would likely be appraised at a significant discount to this value, according to Morningstar.
Simon had moved the property to its “Other Properties” category, a designation referring to a category of real estate holdings that don’t fall under its core property holdings.
The mall lost $341,395 last year after debt service payments, according to the Goldman Sachs report.
Representatives of Simon Property Group did not respond to CoStar News’ request for comment.
Sign of Fatigue? Last week’s move by Morgan Stanley Capital to pull a $1.28 billion commercial mortgage-backed securities offering backed by a Blackstone-owned portfolio of 62 industrial properties could be a sign of fatigue in what had been a blistering pace for new issuance.
“I don’t foresee a complete chill on issuances, but there will likely be a slowdown as issuers reassess the market conditions and investor sentiment,” Eric Brody, managing partner at Anax Real Estate Partners, told CoStar News in an email. “The increased scrutiny from investors and the competitive market will make issuers more discerning about when and how they bring their deals to market.”
The current environment, where CMBS loans are increasingly moving to special servicing, has heightened investor concerns about repayment, Brody added. That is prompting investors to scrutinize deals more closely to ensure they are not only getting good returns but also investing in stable assets.
Alan Todd, CMBS strategist for Bank of America Securities, agreed.
“Although we do not expect the vast majority of forthcoming deals to fall through, it is likely that at least some [will],” Todd wrote in his weekly column. “To the extent that investors view growth assumptions as overly generous, issuers may end up having to grant some sort of spread premium to draw in buyers.”
Relocation Plans Spell Trouble for DC Office Loan: A $243 million CMBS loan backed in part by Three Lafayette Centre in Washington, D.C., moved to special servicing this month for imminent monetary default, according to CoStar loan notes.
The 306,874-square-foot office building serves as the headquarters for the U.S. Commodity Futures Trading Commission, which occupies about 293,000 square feet in the building.
The CFTC is moving its headquarters from its three-decade-old home in the West End to more than 147,000 square feet at Patriots Plaza III at 355 E St. SW in D.C. for 10 years with a 10-year option.
The CFTC has a lease running through September 2025 at Three Lafayette.
GIC Real Estate and the Korea Investment Corp. own the property through a joint venture. Three Lafayette is one of three buildings that make up Lafayette Centre, which the joint venture acquired in 2017 for $404 million.
Representatives of the owners did not respond to a request for comment.