Competing bids for Starwood’s suffering retail

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

TRD NATIONAL /
May.May 27, 2020 12:30 PM
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
Vladislav Doronin (Credit: Gesi Schilling via Wikipedia)

Billionaire developer Doronin buys Fort Lauderdale assemblage for $63M

Billionaire developer Doronin buys Fort Lauderdale assemblage for $63M
Seth Wise, Co-CEO of The Altman Companies, Altís Ludlam Trail

Altman scores $55M construction loan for Ludlam Trail project

Altman scores $55M construction loan for Ludlam Trail project
Joseph Swedroe (Corcoran, iStock)

Corcoran agent in Miami loses job over “racist and fear-based” marketing

Corcoran agent in Miami loses job over “racist and fear-based” marketing
Vanessa Grout with Vladislav Doronin

Vanessa Grout leaves Ugo Colombo’s firm to lead OKO Group’s real estate arm

Vanessa Grout leaves Ugo Colombo’s firm to lead OKO Group’s real estate arm
Rendering of the project with Jon Paul Pérez (top) and Jorge Pérez 

Related switches gears on Terminal Island project, now plans low-rise offices

Related switches gears on Terminal Island project, now plans low-rise offices
Edgardo Defortuna and a rendering of La Playa de Varadero

Not stopping for the pandemic: Fortune, Château could launch Sunny Isles project by year-end

Not stopping for the pandemic: Fortune, Château could launch Sunny Isles project by year-end
Richard Branson (Credit: Virgin, Cindy Ord/Getty Images)

Virgin Trains seeks $350M to build five stations in Miami-Dade

Virgin Trains seeks $350M to build five stations in Miami-Dade
Easton Group picks up land in Hialeah Gardens for $8M

Easton Group picks up land in Hialeah Gardens for $8M

Easton Group picks up land in Hialeah Gardens for $8M
arrow_forward_ios

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

Loading...