With a deadline fast approaching, a real estate giant is making a nine-figure investment in a major Richmond mall.
Taubman Centers has decided to pay off the almost $100 million it owes on a mortgage backed by Stony Point Fashion Park months before the 10-year loan was scheduled to come due.
Taubman spokesperson Barbara Baker said the Michigan-based REIT chose to close out the debt now because it would have faced an early payment penalty for paying the loan back before Jan. 31.
“It’s pre-payable without penalty now, and our view is that, given the interest rate on it, we wanted to pay it off as soon as possible,” she said.
Taubman raised the cash to cover Stony Point’s loan by selling an ownership stake in another of its shopping centers in Tampa, Fla. The deal brought in $337 million.
Baker said the sale of the International Plaza property in Tampa was not directly tied to the debt repayment but said using a timely influx of capital to knock out its Stony Point loan made sense because of the note’s high interest rate.
The Stony Point mortgage, issued by Goldman Sachs, had a 6.24 percent interest rate. Andy Little, principal with real estate investment banking firm John B. Levy & Co., said today’s rates on loans similar to the one backed by Stony Point are in the 4 percent range. The loan was set to come due in June.
Taubman took out the mortgage in 2004, putting up 343,000 square feet of the mall as collateral. That number excluded anchor stores Saks Fifth Avenue and Dillard’s. The two department stores own their respective shops at Stony Point.
When the loan was made, Stony Point had annual net cash flow of $11.3 million, enough to cover its debt service obligations with almost $3 million to spare.
But the mall’s revenue figures have slipped since its mortgage was issued 10 years ago. Cash flow dropped as low as $7.67 million in 2011. Based on figures provided by the real estate tracking firm Trepp, Taubman’s estimated yearly debt service obligation for Stony Point was about $8.5 million, a number the mall’s net cash flow hasn’t topped since fiscal 2008.
Meanwhile, Stony Point’s crosstown rival Short Pump Town Center topped the Southside mall’s sales numbers by a 3-to-1 margin in 2012. Short Pump brought in an estimated $352.2 million in business to Stony Point’s $110 million, according to Henrico County and City of Richmond records.
Despite its recent financial performance, Taubman never missed a payment on Stony Point.
“I think we feel that the center has a lot of potential, and we want to explore that further as we think about how to finance it long-term,” Baker said.
Baker said that Taubman could use Stony Point to back a future loan but that the REIT does not have any immediate plans to put a new mortgage on the property.
The last time a Richmond-related loan came due for Taubman, the REIT publicly announced it would stop making payments on its loan on Regency Square and turned the 820,000-square-foot West End mall over to its lender in a deed in lieu of foreclosure agreement.
Taubman still has significant value in Stony Point and could eventually secure credit backed by the mall, Little said.
“From an underwriting standpoint going forward, the mall is 96 percent occupied,” Little said. “A lender is going to look at trends with the rents, but you have a lot of leases that are recently signed, and that establishes the market.”
A re-fi to cover the entirety of Stony Point’s current obligations, however, might have been unattainable right now.
“In their current state they were overleveraged,” Little said. “I don’t think a $100 million loan is in the cards.”