With a $71.6 million loan coming due next month, the owner of Regency Square Mall is looking to sell the property and walk away from the more-than-40-year-old mall.
Michigan-based retail operator Taubman is shopping the mall to potential buyers in “hopes of pulling off a short sale” according to a report on Trepp.com, a service that tracks data on large commercial real estate loans.
Karen MacDonald, spokesperson for Taubman, said that the company hired a broker to find a buyer for the property. She did not say who that broker is. MacDonald said the lender preferred that Taubman find a buyer to assume the deed instead of going through with a foreclosure.
Last October, Taubman revealed that it would stop making payments on the mall’s mortgage because the property value had fallen far below the amount due on the loan. The mall was also no longer generating enough revenue to cover interest payments on the loan, despite a few new retailers and renovations.
Since then, the loan has gone into default.
Taubman bought the mall in 1997 for $123.9 million in cash. In 2001, Bank of America issued the current loan to Taubman, with the mall as collateral. That loan was bundled with other commercial real estate loans and sold to investors as commercial mortgage-backed securities. In 2009, Taubman adjusted the value of the property on its books to just $30 million.
A deal to sell the property for less than the amount due on the loan would wipe out some of the investors who bought securities connected to the Regency loan. The investor pool is separated into different classes; those that bought the lowest-rated securities with the highest potential yields are the ones at risk to lose their investments.
John Levy, president of Richmond real estate investment bank John B. Levy & Co., said the mall’s plight is a prime example of the tight spot both lenders and borrowers have found themselves in since the CMBS lending bubble burst.
“I think this is a loan that was made at the height of the CMBS frenzy. Frankly, I think a lot of people kind of looked at it when it was made and thought it would get in trouble eventually,” Levy said.
Short Pump Town Center and Stony Point Fashion Park weren’t under construction when the loan on Regency was made, but the plans were in the pipeline, Levy said. When those two malls were completed in 2004, both pulled shoppers away from Regency.
Taubman developed and still owns and operates Stony Point.
Levy said it is hard to say how much of a discount the lender will be willing to accept to pay off the loan, but he said his firm has negotiated discounts in excess of $10 million.
As far as finding a new owner for the mall, Levy said there are buyers out there for the particular property type.
“It is not a question as to whether there are buyers. The real question is at what price,” Levy said. “The market has shifted away from these interior enclosed malls to fancy exterior malls, so you have to right-size the financing for the new economics.”
Brian Glass, a retail broker for Grubb & Ellis | Harrison & Bates, said that the loan would have to be deeply discounted to attract a buyer.
“A very value-conscious buyer might see some upside in Regency Square, but it is going to be a limited buyers pool,” Glass said.
Glass said the area around Regency is – overall – a healthy market for retail.
“Wal-Mart found that there was a place in the market when they tore down the old K-Mart and developed that portion,” Glass said. “There is certainly viability for retailers in that area.”
With a $71.6 million loan coming due next month, the owner of Regency Square Mall is looking to sell the property and walk away from the more-than-40-year-old mall.
Michigan-based retail operator Taubman is shopping the mall to potential buyers in “hopes of pulling off a short sale” according to a report on Trepp.com, a service that tracks data on large commercial real estate loans.
Karen MacDonald, spokesperson for Taubman, said that the company hired a broker to find a buyer for the property. She did not say who that broker is. MacDonald said the lender preferred that Taubman find a buyer to assume the deed instead of going through with a foreclosure.
Last October, Taubman revealed that it would stop making payments on the mall’s mortgage because the property value had fallen far below the amount due on the loan. The mall was also no longer generating enough revenue to cover interest payments on the loan, despite a few new retailers and renovations.
Since then, the loan has gone into default.
Taubman bought the mall in 1997 for $123.9 million in cash. In 2001, Bank of America issued the current loan to Taubman, with the mall as collateral. That loan was bundled with other commercial real estate loans and sold to investors as commercial mortgage-backed securities. In 2009, Taubman adjusted the value of the property on its books to just $30 million.
A deal to sell the property for less than the amount due on the loan would wipe out some of the investors who bought securities connected to the Regency loan. The investor pool is separated into different classes; those that bought the lowest-rated securities with the highest potential yields are the ones at risk to lose their investments.
John Levy, president of Richmond real estate investment bank John B. Levy & Co., said the mall’s plight is a prime example of the tight spot both lenders and borrowers have found themselves in since the CMBS lending bubble burst.
“I think this is a loan that was made at the height of the CMBS frenzy. Frankly, I think a lot of people kind of looked at it when it was made and thought it would get in trouble eventually,” Levy said.
Short Pump Town Center and Stony Point Fashion Park weren’t under construction when the loan on Regency was made, but the plans were in the pipeline, Levy said. When those two malls were completed in 2004, both pulled shoppers away from Regency.
Taubman developed and still owns and operates Stony Point.
Levy said it is hard to say how much of a discount the lender will be willing to accept to pay off the loan, but he said his firm has negotiated discounts in excess of $10 million.
As far as finding a new owner for the mall, Levy said there are buyers out there for the particular property type.
“It is not a question as to whether there are buyers. The real question is at what price,” Levy said. “The market has shifted away from these interior enclosed malls to fancy exterior malls, so you have to right-size the financing for the new economics.”
Brian Glass, a retail broker for Grubb & Ellis | Harrison & Bates, said that the loan would have to be deeply discounted to attract a buyer.
“A very value-conscious buyer might see some upside in Regency Square, but it is going to be a limited buyers pool,” Glass said.
Glass said the area around Regency is – overall – a healthy market for retail.
“Wal-Mart found that there was a place in the market when they tore down the old K-Mart and developed that portion,” Glass said. “There is certainly viability for retailers in that area.”
Just goes to show that E. Carlton Wilton knew the market. He sold the Mall at the top of its game when the handwriting was faintly on the wall about Short Pump. Taubman, not a local company, did not adequately do their homework.
Time to plan a mixed-use development for that site.
Regency is in a very nice part of town. Fresh Market, Kroger, Wal-Mart at each quadrant of that intersection, this is a desirable location/building at a $20mm price tag. I wonder if Thalhimer, Pruitt or Markel Eagle will jump on this at such a steep discount.
B OF A is Toxic throughout. This loan they made in 2009, which they encouraged Ivestors to back, is indicative of the lies they perpetrate. That residential crisis (Fused by the collapse of Countrywide), was into it’s second full year and the commercial bubble was being punctured and would inevitably burst. Well look no further – this is part of the BUST. Yes, much quieter than the residental POP, but no less harmful. B OF A certainly would encourage Taubman to find a buyer. Their balance sheets are full of REO (real estate owned), entries and non-performing assets. They led… Read more »
Regency,like cloverleaf,has done what it was here to do.Now it is time for the property to be used more appropriately.Mixed use makes sense.Walmart does not.Grocery is fine,big box suburban sprawl does not.
And nobody should praise E.Carlton Wilton.He made have made a good deal on Regency but all his deal were on the back of his renters and vendors.
CBMS & their peddlers: Prime participants in the current real estate meltdown.
Let’s hope the engineers of the CBMS program are either doing time for white collar crime or writing books on how they created real estate welfare by bundling and over valuation using untested theories and investor greed…..receiving big commissions along the way….doing penance??
The end is near for this mall. Richmond doesn’t need 3 malls (Stony Point, Short Pump and Regency) within this radius. The area is WAY over-retailed.
I vote to move F21 to Short Pump, gut the mall, and turn it into an indoor recreational space. It would also be a great location to turn into affordable (keyword: affordable) apartment living. With premade parking decks already in place and a massive retail base and suburban area surrounding the mall currently it would easily be prime real estate in the future.