The impact of COVID-19 home ordering and business restrictions may seal the fate of regional malls that struggled before the pandemic report Completed by DBRS Morningstar.
The rating agency's CMBS Weekly Chronicle notes that CBL Properties recently announced in its second quarter financial reports that it is preparing to hand over three properties to lenders with secure commercial mortgage-backed securities loans: Burnsville Center in Burnsville, Minn .; Eastgate Mall in Cincinnati, Ohio; and Hickory Point Mall in Forsyth, Ill.
These developments are not surprising given the historical performance trends for these malls, the report concludes.
"The impact of the pandemic has exacerbated the existing burden of underperformance in regional malls and further diminished the prospect of a turnaround for weaker CMBS top performers," the report said. "As a result, the likelihood of defaults and losses is generally higher for the respective trusts, especially for less well-capitalized owners / operators like CBL, The Pyramid Companies (Pyramid) and Washington Prime Group (WPG)."
According to a DBRS platform, around 70 credits and loans, supported by around 50 regional shopping centers, have been converted into special services since the pandemic began.
"While some of these transfers are taking out loans that need temporary relief, many are loans that were under significant performance degradation prior to the pandemic," the DBRS Morningstar report said.
The report highlighted a number of shopping centers where there is a risk of “the respective borrower handing over the keys”.
The loan for the Montgomery Mall owned by Simon Property Group in North Wales, Penn. According to the report, switched to special maintenance in July. The special service provider cited an impending default due to COVID-19 effects as the reason for the transfer of the loan.
Occupancy at the Southpark Mall in Colonial Heights, Virginia, operated by CBL Properties, fell to 64.1% in 2018 after the local Sears store closed. The loan on the property was transferred to a special agency in March, and a request for pandemic-related relief was finally withdrawn, the report said.
The Washington Prime Group-operated Oak Court Mall loan in Memphis, Tennessee, matures in April 2021. "Given the weaker financial position of loan sponsor WPG and the decline in performance due to the issue, we believe it will be significantly (ly) difficult to obtain a replacement loan," the report said. The loan was transferred to a specialized service in May and was more than 90 days in arrears from July. The leases for 34 tenants will expire either in 2020 or 2021.