Lenders grant New York’sbiggest mall a reprieve
Owner gets 5-year extension on late mortgage-backed securities payments
New York’s biggest shopping centre has reached a deal with lenders to avoid a default after the pandemic and years of retail turmoil left it deeply under water on its mortgages.
Destiny USA, a 2.4 million sq ft shopping centre in Syracuse, owed US$430 million on two mortgage-backed securities and missed a June 6 repayment deadline.
The mall’s owner, Pyramid Management Group, said last week it had got a five-year extension on its loans, with flexibility to keep investing in the property.
“The resilience and strength of the shopping centre, along with
Pyramid’s continued efforts to reimagine, redefine and enhance the guest experience, enabled us to successfully extend the loan,” Pyramid chief executive Stephen Congel said in a statement.
Worth US$710 million in 2014, Destiny’s value sunk 80 per cent to just US$147 million in an appraisal last year. Destiny USA was slammed as shoppers shifted to e-commerce and pandemic lockdowns froze their businesses.
Pain has been widespread throughout the industry. Wellfinanced landlords including Starwood Capital Group, Brookfield Asset Management and Simon Property Group have walked away from heavily indebted malls as the prospects for profitability faded.
Solving Destiny USA’s financing woes is complicated by the fact that it raised money through US$280 million of municipal debt, which ranks ahead of its commercial mortgage-backed securities in terms of repayment. That threatened recovery prospects for mortgage-bond investors and complicated potential workout scenarios. Payments on the municipal debt have been current and the next payment is due July 1. So long as no payments are missed, a commercial mortgage-backed securities default would not impact bondholders.
Pyramid, which owns 14 malls in New York and Massachusetts with more than US$2 billion in publicly traded debt, has won reprieves on other loans this month. It secured a new 10-year commercial mortgage-backed security on its Crossgates Commons shopping centre, a three-year extension on a US$236 million security on Walden Galleria and a modification of a US$19.3 million security on the Hampshire Mall, according to the company.
Destiny USA has tried to reinvent itself as an entertainment destination with a 2012 expansion that included a go-kart racetrack and ropes course. Despite the effort, its profits were in decline and vacancies on the rise even before the pandemic.
Destiny’s debt was originally set to mature in 2019, but Pyramid received extensions to 2022 after being unable to refinance. It also deferred some payments when the pandemic took hold in 2020.
Wells Fargo stepped in as the mortgages’ special servicer – the party which works on behalf of investors to cut a deal when a borrower runs into trouble – in April “due to imminent payment default”.
The mall’s investors had limited motivation to wrest control of the property from Pyramid because that would potentially wipe out the value of the debt, according to market participants.