We start to see some local fallout from the billions of Commercial Backed Securities that matured in 2006 and beyond.
The recent sale of the Granite Run Mall is a local example of the seemingly never-ending, head-pounding hangover that parts of the commercial real estate market continue to suffer from.
It stems from those reckless days when commercial mortgage brokers, like drunken sailors, took a shine to any piece of property that crossed their path, issued commercial mortgage backed securities (CMBS) loans on them and went on their merry way.
The loan on Granite Run was part of a $2.45 billion CMBS pool issued in 2006 by Deutsche Bank Securities and Banc of America Securities. The Granite Run loan was originally for $122 million, making it the fourth largest in that tranche, according to SEC documents filed by Deutsche.
That fourth largest loan wasn’t a particularly good investment. With the sale of the property to BET Investments Inc. for $24.3 million and a net outstanding balance of $128.3 million, the lender and those who bought pieces of the debt will be taking, basically, a 100 percent loss on their investment, according to Trepp data.
It can’t be fun driving along Baltimore Pike each day watching the mall lose tenants and value.
Here’s where Granite Run, and, let’s face it, Media, Pa., was a victim of those heady pre-recession days.
Simon Property Group and Macerich Group — two well-regarded real estate companies — bought the mall in 1998 as part of a joint venture that spent $974.5 million to buy 12 malls totaling 10.7 million square feet from the Equitable Life Assurance Society.
The CMBS loan was secured by 691,966 square feet of the 1 million-square-foot regional mall. Regular payments on the loan were being paid by the mall’s owners. However, the loan was placed in special servicing on Oct. 25, 2010, because the property wasn’t generating enough monthly profit to cover the debt service.
By spring 2011, the special servicer overseeing the loan took over the property from the partnership that owned it and named a new company to manage and lease up vacancies. The lender and the owners apparently couldn’t work out a deal to renegotiate terms on the loan and walked away.
In late 2012, an appraisal on the property slashed the value of Granite Run by more than $100 million and put the appraised value of Granite Run at a meager $27.6 million. Pitiful considering when the Simon-Macerich partnership bought it, the mall was valued at $155 million.
The property was eventually foreclosed upon and put up for sale. If there’s any good news in this, it’s the early vision by BET to transform it into something that will reinvigorate Granite Run and hopefully give Media something that will not only generate more tax revenues but something it can be proud of.
Source: Philadelphia Business Journal
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