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Located in downtown White Plains, about a dozen miles north of New York City, the 814,000-square-foot mall known as The Westchester is “the dominant upscale retail destination within its trade area,” according to a recent Moody’s report.
The three-story enclosed shopping center was built in 1995 and acquired by Simon Property Group two years later. Since 2015, the landlord has spent about $60 million on renovations, redeveloping the food court and adding “experiential lounges and children’s areas.”
In early 2020, Simon and partner Institutional Mall Investors secured a $400 million refinancing for the property from Credit Suisse subsidiary Column Financial. Pandemic restrictions would soon shut down the mall from mid-March to early July.
All stores at the mall have since reopened, and the Westchester “is well positioned to return to its strong pre-pandemic performance given the high-quality nature of the retail tenancy,” according to a DBRS Morningstar report from last month.
The refinancing has been securitized into several commercial mortgage backed securities transactions over the past year, and related documents provide an inside look at the mall’s finances and how it weathered the pandemic.
As of last October, the mall was 89 percent occupied, down from 97 percent in January. Excluding anchor tenants Neiman Marcus and Nordstrom, who pay pennies per square foot, average annual rent at the complex comes out to about $115 per square foot.
Both anchors have seen sales decline each year since 2016, and the stores also underperformed the national averages for their respective brands in 2019, according to Moody’s Retail Database data.
According to Fitch Ratings, a Nordstrom store also anchors the SoNo Collection mall 30 miles east in Norwalk, Connecticut, which opened in late 2019. The nearest Neiman Marcus location used to be at Hudson Yards in Manhattan, but that location was closed permanently last summer after the retailer filed for bankruptcy.
Sales for non-anchor tenants have also declined in recent years, with a few notable exceptions — Tesla Motors pulled in a whopping $33,000 per square foot in sales over the 12 months ending November 2019, while Apple reported more than $5,600 per square foot over the same period.
Apart from Tesla and Apple, average sales for inline tenants — those with less than 10,000 square feet — dipped from $725 per square foot in 2016 to $629 per square foot in 2019, according to Moody’s. The occupancy cost ratio for these tenants — rent divided by sales — was rather high at 23 percent.
“Centers with high ratios are generally more susceptible to market volatility as they have limited capacity to grow rents as leases expire,” Moody’s analysts wrote.
Other tenants that saw more than $1,000 per square foot in sales in 2019 included David Yurman, Tourneau, Louis Vuitton, Gucci, Tiffany & Co., Lululemon and Peloton.
During the pandemic, Simon and IMI agreed to provide rent relief or deferrals for several tenants, in some cases in exchange for the temporary waiver of co-tenancy clauses. From October to January, monthly rent collections were between 84 and 87 percent.
The Westchester mall benefits from the demographics of its trade area, with a population of more than 204,000 within a five-mile radius and an average household income of more than $182,000.
The latest refinancing returned more than $71 million in equity to the landlords. The fixed-rate, interest-only loan has a term of ten years, during which time leases accounting for more than half of the total rentable area are set to expire. The loan is structured with tenant improvement/leasing cost reserves to mitigate the risk of turnover.
Simon’s partner at the property, Institutional Mall Investors, is a co-investment venture owned by an affiliate of Miller Capital Advisory and the California Public Employees' Retirement System. The investment platform focuses on “high-quality, market-dominant, fashion-oriented retail properties.”
Apart from The Westchester, Simon and IMI also co-own several other malls, such as the Galleria in Houston, the Fashion Centre at Pentagon City in Arlington, Virginia and the Shops at Mission Viejo in Orange County, California.