Friday, 06 August 2010 09:15

Commercial Real Estate Continues to Dropped into Foreclosure as the Landlords of Said Properties Enjoy Skyrocketing Share Prices? Yep, Makes Plenty of Sense

From the Dallas Morning News (hat tip to BoomBustBlogger lix333):

One of Dallas' oldest regional shopping centers has been handed over to lenders. The owners of Valley View Center mall have quietly transferred title to the 37-year-old mall at LBJ Freeway and Preston Road to a lender group headed by Bank of America.

The shopping center, which in recent years has lost anchor tenants, contains more than 1.6 million square feet and has J.C. Penney and Sears department stores. The mall is less than 75 percent leased.

Macerich Co., a California-based real estate investment trust, declined to comment Wednesday on why it gave up ownership of the shopping center. [No need to worry, you do realize that I have plenty of comments on why it gave up ownership of the shopping mall, don't you?]

The property is now in the hands of LNR Partners Inc., a Florida special servicer of distressed real estate, Dallas County deed records show. Macerich had a $125 million loan on Valley View, which was due in January, the California-based company's financial filings show.

The monthly payments on the loan were $596,000. Dillard's and Macy's both closed large stores at Valley View, which has steadily lost customers to newer shopping venues...

Macerich in 1996 paid more than $85 million to purchase Valley View, then considered one of North Dallas' most successful shopping centers. In 2005, the shopping center company spent $30 million to add a 16-screen AMC movie theater. [This was one year before the top of the bubble. Absolutely impeccable timing!]

And in recent years, Macerich has worked on plans to redevelop Valley View and considered tearing down parts of the old mall and incorporating residential and office space. [Exactly what is needed in an residential housing commercial real estate glut to maximize that ROI!]

In December of 2009, I posted and article and accompanying research titled, "A Granular Look Into a $6 Billion REIT: Is This the Next GGP?" The following are excerpts from it:

The results of these activities have been congealed in our analysis of Macerich’s entire portfolio of properties (118+ properties), including wholly owned, joint ventures, new developments, unconsolidated and off balance sheet properties. Below is an excerpt of the full analysis that I am including in the updated Macerich forensic analysis. This sampling illustrates the damage done to equity upon the bursting of an credit binging bubble. Click any chart to enlarge (you may need to click the graphic again with your mouse to enlarge further).


Notice the loan to value ratios of the properties acquired between 2002 and 2007. What you see is the result of the CMBS bubble, with LTVs as high as 158%. At least 17 of the properties listed above with LTV’s above 100% should (and probably will, in due time) be totally written off, for they have significant negative equity. We are talking about wiping out properties with an acquisition cost of nearly $3 BILLION, and we are just getting started for this ia very small sampling of the property analysis. There are dozens of additional properties with LTVs considerably above the high watermark for feasible refinancing, thus implying significant equity infusions needed to rollover debt and/or highly punitive refinancing rates. Now, if you recall my congratulatory post on Goldman Sachs (please see Reggie Middleton Personally Contragulates Goldman, but Questions How Much More Can Be Pulled Off), the WSJ reported that the market will now willingingly refinance mall portfolio properties 50% LTV, considerably down from the 70% LTV level that was seen in the heyday of this Asset Securitization Crisis. Even if we were to assume that we are still in the midst of the credit bubble and REITs can still refi at 70LTV (both assumptions patently wrong), rents, net operating income and cap rates have moved so far to the adverse direction that MAC STILL would not be able to rollover the debt in roughly 37 properties (31% of the portfolio) whose LTVs are above the 70% mark – and that’s assuming the credit bubble returns and banks go all out on risk and CMBS trading. Rather wishful thinking, I believe we can all agree.

For those of you who didn't catch it in the table above, I'll blow it up for you...

Notice anything familiar??? There is a very strong chance that every single property on the list detailed in the forensic reports will be taken over by the lenders, that's a lot of properties. Subscribers should reference MAC Report Consolidated 051209 Retail MAC Report Consolidated 051209 Retail 2009-12-07 03:46:49 580.11 Kb , MAC Report Consolidated 051209 Professional MAC Report Consolidated 051209 Professional 2009-12-07 03:48:11 1.03 Mb, those who don't subscribe should download my  CRE 2010 Overview CRE 2010 Overview 2009-12-15 02:39:04 2.72 Mb. For those who want access, click here to subscribe!

So, why has Macerich and the entire REIT sector defied gravity despite the fact they are getting foreclosed upon faster than a no-doc, subprime, NINJA loan candidate who just lost his minimum wage job amongst all of these “Green Shoots”??? Well, I took the time to answer that in explicit detail... I urge all to read The Conundrum of Commercial Real Estate Stocks: In a CRE “Near Depression”, Why Are REIT Shares Still So High and Which Ones to Short?

More hard hitting BoomBustBlog commercial real estate commentary and research from Reggie Middleton:

The next step in the GGP saga

Tuesday, December 29th, 2009

Note to all subscribers

Wednesday, December 9th, 2009

Reggie Middleton vs Goldman Sachs, Round 1

Tuesday, December 8th, 2009

Recent REIT Analysis Q3 2009 Review

Saturday, November 21st, 2009

Last modified on Friday, 06 August 2010 10:08


  • Comment Link Reggie Middleton Friday, 13 August 2010 07:07 posted by Reggie Middleton

    I don't have the bandwidth, nor positions in those entities. Sorry.

  • Comment Link n4wc Friday, 13 August 2010 06:57 posted by n4wc

    Can you do an analysis of non traded REITs like Wells and Hines. I own shares in both and I think they are doing well. What do you think?


  • Comment Link 9871juranek Saturday, 07 August 2010 14:17 posted by 9871juranek

    It's too bad that MAC does not have longer term options. From what I see March 2011 is longest term option available. In the investment game timing is everything!

  • Comment Link whiteshadow Saturday, 07 August 2010 13:31 posted by whiteshadow

    might b hard to short but atleast ppl who r well known to fact won't b there to cry when it all comes to an end....

  • Comment Link Mark Hankins Saturday, 07 August 2010 06:36 posted by Mark Hankins

    I'm not shocked much at the aging 75% vacant properties that go back to the bank. What shocks me is a newer property in a prime location that is 100% leased yet can't generate enough revenue to make the owner's nut:

  • Comment Link shaun noll, CFA Friday, 06 August 2010 14:46 posted by shaun noll, CFA

    agreed, costly sector to short given rally and carrying costs on the short but implied vol looks cheapppppp on many of these names.

  • Comment Link Reggie Middleton Friday, 06 August 2010 10:03 posted by Reggie Middleton

    This sector has been hard to short for the past year, but the fundamentals and the macro scene all point to one inevitable conclusion. What will be most interesting is to see what happens if the banks push hard enough to recognize the losses on their books. As you said,those great capital ratios can definitely handle the stress :-)

  • Comment Link shaun noll, CFA Friday, 06 August 2010 09:59 posted by shaun noll, CFA

    nice. that mall isn't even close to the worst of what they own too. commentary from people I know who have spent their live in CRE is that the banks are pushing back now too with a bit more power. I guess now that they have such great capital ratios they can do that (sarcasm!)

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