Competing bids for Starwood’s suffering retail

Washington Prime Group, Mission Peak Capital and Pacific Retail have made proposals

National /
May.May 27, 2020 08:00 AM
Barry Sternlicht and (from top) Capital Mall in Washington, Franklin Park Mall in Ohio and Plaza West Covina Mall in California (Credit: Capital via Starwood, Franklin via OCP Contractors)

Barry Sternlicht and (from top) Capital Mall in Washington, Franklin Park Mall in Ohio and Plaza West Covina Mall in California (Credit: Capital via Starwood, Franklin via OCP Contractors)

Map of the seven malls in the portfolio (Source: Tel Aviv Stock Exchange filing)

Map of the seven malls in the portfolio (Source: Tel Aviv Stock Exchange filing)

Starwood Capital’s seven-property regional mall portfolio, already beset by high vacancy rates and in deep trouble with Israeli investors, has hit a new low as the coronavirus has sunk rent collection to around 20 percent.

Now, with bondholders poised to accelerate payments and a senior lender threatening to foreclose, six competing proposals to restructure the assets have emerged, according to documents recently filed on the Tel Aviv Stock Exchange.

The first batch, submitted May 17, came from Global Fund Investments, Namdar Realty Group and Kohan Retail Investment Group. Starwood presented its own proposal a week later jointly with Mission Peak Capital, followed by Washington Prime Group and a joint venture of Pacific Retail Capital and Golden East Investors.

Starwood has seen its Israeli bonds downgraded three consecutive months, to C-, a rating low enough that bondholders can demand immediate repayment. Meanwhile, the firm has also defaulted on a $549 million CMBS loan that covers five of the properties, according to disclosures.

The bonds, which traded around a dismal 30 cents on the dollar for most of 2019, have fallen to around 15 cents during the coronavirus pandemic.

Washington’s letter of intent outlines a plan to buy a 75 percent ownership interest in the properties, with Starwood retaining the rest. Washington would assume management of the properties, including leasing, and would provide Starwood with $45 million.

Mission’s letter expresses support for a plan Starwood outlined in a May 24 term sheet, which would involve Mission injecting $5 million of new capital into Starwood to support its retail assets and start a restructuring agreement with its senior lenders.

Under this agreement, Mission would receive 30 percent of profits moving forward, and Starwood, which would stay on as the property manager, would be released from all liability and garner 20 percent of profits. The company’s bondholders would get the remaining half of profits along with $19 million in the trustee account.

Mission first approached Starwood Retail Partners in mid-May to discuss restructuring the company. Its letter lists the reasons it prefers Starwood’s plan: It offers the most cash to the company’s bondholders; it would allow the companies to act quickly on troubled properties; and firms making competing bids “suffer from a lack of credibility” and are more interested in paying themselves through fees instead of helping bondholders.

“The properties are in a dire financial situation where rent collections hover around 20% due to Covid-19 related closures,” its letter states. It adds that changing the property manager “would signal a sinking ship to tenants and embolden attempts to seek rent reductions and holidays,” and make foreclosures at the retail properties more likely.

Pacific Retail and Golden East Investors would distribute 65 percent of Starwood’s unrestricted cash balance for its bondholders and use the rest to support the company’s ongoing operations. Its proposal would entitle it to multiple management fees.

The letter says Pacific Retail has “unparalleled knowledge” of the seven mall properties it aims to manage, as it had run them before Westfield sold them to Starwood in 2013 for $1.6 billion. Contrary to Mission’s letter, it claims that special servicers do not see Starwood as the ideal manager for its mall properties and that Starwood has a “lack of conviction in its ability to create value from the properties.”

Starwood and Washington declined to comment. Representatives for Mission, Pacific Retail, Golden East Investors and Kohan did not respond to requests for comment. Global and Namdar could not immediately be reached.

In a recent interview with The Real Deal, Starwood Capital Group CEO Barry Sternlicht said the pandemic was “a dagger to the chest” for the retail industry but that the firm’s retail outfits were “not really significant investments.”


Related Articles

arrow_forward_ios
The tax break allows foreign visitors to reclaim a sales tax of 20 percent on items bought in the country for more than £30 (Getty; Unsplash)

UK tax break expiration could hurt struggling retailers

UK tax break expiration could hurt struggling retailers
Istanye Park in Istanbul (Photo via Wikipedia Commons)

Turkish mall valued at $1B in deal with Qatar

Turkish mall valued at $1B in deal with Qatar
258 8th Avenue (Google, Target)

Target planning yet another NYC store in Chelsea

Target planning yet another NYC store in Chelsea
Union Square Hospitality Group CEO Danny Meyer and the Union Square Cafe (Photos via Getty; Wikipedia Commons)

Danny Meyer’s Union Square Hospitality halts indoor, outdoor dining

Danny Meyer’s Union Square Hospitality halts indoor, outdoor dining
From top: Park Place Mall in Tucson, AZ with Brookfield Property Partners CEO Brian Kingston; Westfield Countryside in Clearwater, FL with Unibail-Rodamco-Westfield CEO Christophe Cuvillier; and The Mall at Tuttle Crossing in Dublin, OH with Simon Property Group CEO David Simon (Google Maps, Westfield, Simon, Getty)

These are the biggest malls landlords ready to hand over to CMBS lenders

These are the biggest malls landlords ready to hand over to CMBS lenders
An analysis of data from CoStar found that retailers nationwide had missed two to four months’ rent (iStock)

Retailers now owe $52B in back rent

Retailers now owe $52B in back rent
Macy’s CEO Jeff Gennette (Getty; iStock)

Macy’s experiments with “dark stores”

Macy’s experiments with “dark stores”
Macerich’s Queens Center Mall (Photo via Macerich)

Macerich’s Queens Center Mall emerges from special servicing

Macerich’s Queens Center Mall emerges from special servicing
arrow_forward_ios

The Deal's newsletters give you the latest scoops, fresh headlines, marketing data, and things to know within the industry.

Loading...