If you want to gauge investor demand for suburban mall properties, head to Burnsville, Minnesota.
Last week, a $63 million loan secured by about half of a 1 million square foot mall in the Minneapolis suburbs hit the auction block. The collateral backing the loan was valued at $137 million in 2010.
When the auction started, the opening bid was $7 million. When the loan finally sold, the winning bid was just $17 million, or a more than 80 percent drop from the value of the collateral. This amounted to a loss of over $40 million to the loan’s bondholders, according to the data provider Trepp.
CBL Properties, which recently filed for Chapter 11 bankruptcy, sold the loan. The buyer, who will gain control of half of the mall, was not disclosed; a broker at Newmark involved in the deal declined to identify them. The deal has not yet closed, and according to the auction site 10-X, the property is in escrow.
The sharp discount could signal distress for mall owners as they attempt to ditch CMBS loans tied to properties outside of major cities, either through a friendly foreclosure or a deed in lieu of foreclosure. According to Trepp, at least 100 CMBS loans with a total outstanding balance of $3.9 billion have expressed a willingness to be handed back to lenders, a process colloquially known as “jingle mail.”
The Burnsville mall faced a number of challenges. Sears, which was not backing the loan, vacated its store in September 2017; the space is now vacant. The property’s net operating income fell to $7.34 million in 2019 from $10.75 million in 2017.
In May, CBL said it would record a $133.6 million loss to write down the carrying values of the Burnsville mall, as well as one in Monroeville, Pennsylvania, to the properties’ estimated fair values.
CBL first announced plans to file for bankruptcy in August. By filing for bankruptcy, the company said it can reduce its debt obligations by $1.5 billion. Its portfolio consists of 107 properties across 26 states totaling 66.7 million square feet. The company is generally focused on Class B and C malls, which bring in less money per square foot than high-end Class A malls.
Other large mall owners have also sought to hand over the keys to struggling shopping centers. Brookfield Property Partners is looking to hand over a $90 million CMBS loan tied to a mall in northern Kentucky. Namdar Realty has attempted to do the same for a $33.3 million loan backing a mall in Saginaw Township, Michigan.