JP Morgan and Barclays plan to securitize the senior portion of a $1.2 billion commercial mortgage loan backed by Houston’s Galleria Mall, according to Standard & Poor’s.
The property is owned and controlled by a 50-50 joint benture between Simon Property Group and Institution Mall Investors.
The deal, called Houston Galleria Mall Trust 2015-HGLR, will offer $1.05 million of securities backed by a 10-year loan. The loan pays only on interest for its entire term. Interest-only loans are considered risker than amortizing loans since they have larger loan balances at maturity.
The remaining debt secured by the property will be held outside the trust; it is being retained by two of the mortgage loan sellers (JPMorgan Chase Bank and Barclays Bank).
S&P plans assign an AAA’ ratings to $600 million of class A notes; an AA- rating to $133.4 million of class B notes; A’ to $76 million of class C notes; BBB- to $155 million of class D notes; and “BB+’ to $85 million of class E notes.
The trust is moderately leveraged, relative to other single-asset CMBS transactions rated by S&P, with a loan-to-value ratio (LTV) of 74.7%, based on S&P’s valuation. The LTV based on the appraiser's valuation is only 47.7%.
By comparison, last week Barclays began marketing $280 million of securities backed by an amortizing, 30-year loan that is secured by the Vintage Faire Mall, a super-regional mall located in Modesto, California. The loan's LTV ratio, based on S&P’s valuation is 86.1%.
Houston’s Galleria Mall is widely considered one of the dominant malls in the U.S., according to S&P. The property is anchored by non-collateral Macy's and Nordstrom, as well as Saks Fifth Avenue and Neiman Marcus, which are both on ground leases. Other notable tenants include H&M, Zara, Top Shop, Forever 21, Express, Victoria's Secret, Louis Vuitton, Tiffany & Co., and Apple, creating a tenant line-up unmatched by any of the mall's local competition.
However, Houston’s economy is largely tied to oil, gas and energy-related industries. S&P is concerned that as these industries weaken due to the recent drop in oil price, so will Houston’s economy, which may potentially impact consumer appetite. This risk is offset by the growing impact health care, technology, and transportation industries have had on Houston’s economy, the rating agency stated in the report.
Simon’s U.S. properties primarily consist of malls, premium outlets, The Mills, community centers, and other retail properties. IMI is a co-investment venture owned by an affiliate of Miller Capital Advisory Inc. (MCA) and the California Public Employees' Retirement System (CalPERS). MCA is IMI's investment manager. The IMI portfolio features regional and super-regional shopping centers in the U.S.