Lenders Vie for Loan on Trophy Calif. Mall

At least a half-dozen insurance companies and commercial MBS lenders are scrambling to land a $500 million mortgage on Fashion Valley Mall, one of the West Coast's top malls.

The owner, a 50-50 partnership between Simon Property and Prime Property Fund, began shopping for a long-term loan on the San Diego shopping center a few weeks ago. The Simon team is close to making a final selection.

The assignment is generating keen interest because of the mall's high quality. Insurers paired off to bid, because they tend to limit the size of exposure to any one loan to about $250 million. Prudential Mortgage teamed up with Northwestern Mutual, while MetLife partnered with New York Life, according to market players.

CMBS shops in the running include Deutsche Bank, Goldman Sachs and J.P. Morgan. But some lenders said securitization programs could face an obstacle. There was talk that Prime Property Fund, which is operated by Morgan Stanley, might balk at the inclusion of a "bankruptcy carveout" in the loan terms. Such a provision, which has become the norm in CMBS loans, automatically converts a nonrecourse commercial mortgage to full recourse status if a borrower voluntarily files for bankruptcy. The provision is intended to prevent defaulted borrowers from delaying foreclosures by filing for bankruptcy, because doing so would make them personally liable for the loan amount and authorize the lender to pursue all of the borrower's assets to gain repayment.

The 1.7 million-square-foot Fashion Valley Mall is near the juncture of four interstate highways and serves an area with an average annual household income of $92,000. Sales at in-line stores exceed $800/sf, market players said, putting the property squarely among the top-performing U.S. malls.

Fashion Valley's value is estimated at about $800 million. That would put the proposed loan-to-value ratio at 62%.

The Simon partnership would use the proceeds to retire a $375 million mortgage provided in 2008 by Westdeutsche Immobilienbank. That floating-rate loan is scheduled to mature in 2013.

Before that, the mall was encumbered by a $200 million loan that Lehman Brothers securitized in 2002 via a $1.2 billion pooled offering (LB-UBS Commercial Mortgage Trust, 2002-C1). That loan was paid off in 2008.

The mall's anchors are Neiman Marcus, Nordstrom, Saks Fifth Avenue, Macy's, JC Penney and Bloomingdale's. Some 200 retailers lease in-line space, including an 18-screen AMC Theatre, Anthropologie, Apple, Coach, Tiffany & Co. and Williams-Sonoma. The mall was built in 1969 and has undergone multiple renovations. Simon acquired its 50% stake in 2001 from Prime Property Fund.

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