J.P. Morgan and Deutsche Bank’s commercial real estate lending subsidiary German American Capital plan to sell $200 million of securities backed by retail assets, according to Morningstar.
Two loans back the deal, called WP Glimcher Mall Trust 2015-WPG. They are secured by Pearlridge Center, a 1.14 million-square foot super- regional mall located in Aiea, Hawaii, 10 miles from the Honolulu central business district; and Scottsdale Quarter, a mixed-use retail center located Scottsdale, Arizona, 17 miles northeast of the Phoenix CBD.
The properties are co-owned by real estate investment trust WP Glimcher and O’Connor Mall Partners L.P., an affiliate of New York-based O’Connor Capital Partners. In February 2015 O’Connor Mall Partners paid WP Glimcher $1.6 billion to acquire a 49% interest in five shopping malls, including the Pearlridge Center in Aiea, Central Oahu and Scottsdale Quarter in Scottsdale, Ariz.
The remaining three properties in the joint venture are The Mall at Johnson City in Johnson City, Tennessee; Polaris Fashion Place in Columbus, Ohio; and Town Center Plaza (which consists of Town Center Plaza and the adjacent Town Center Crossing), in Leawood, Kansas. WP Glimcher continues to lease and manage these properties.
Proceeds of the transaction’s underlying loans will be used to recapitalize the joint venture, through the repayment of $195.1 million of existing debt on the property, fund up-front reserves, and pay closing costs. As part of the recapitalization of the borrower, WP Glimcher contributed fresh equity of $16.6 million, or 9.1% of total costs.
Both loans underlying the securitziation pay only on interest for their entire 10-year terms.
Morningstar assigned a preliminary AAA’ rating to $30.6 million of class A notes. At the subordinate level, there are $32.1 million of class B notes and $34.3 million of class C notes rated AA- and A-, respectively.
The class A, B, and C notes benefit from 46.6%, 35.2%, and 26.4% of credit support, respectively. The transaction is also structured with subordinate, non-pooled certificates totaling $100 million. Each non-pooled loan component serves as the sole source of cash flow for a class of certificates specific to that loan.
Both of the properties securing the loans are considered to be well located. They are also moderately levered, with a loan-to-value ratio, as calculated by Morningstar, of 79.5% for Pearlridge Center and 87.7% for Scottsdale Quarter.
The Pearlridge Center has a large draw from local Oahu residents. Morningstar notes that the location, though not a tourist draw, is the state’s largest enclosed mall with no direct competition within 10 miles.
Pearlridge Center also benefits from good occupancy history at 95% or higher over the last four years.
The Scottsdale Quarter’s location also serves as a key strength of the deal because of the surrounding offices and residential buildings. However Morningstar notes that 75% of tenants have leases that have expired. The property is currently being expanded, but the additional space is not included in the transaction’s collateral. The impact of the expansion on the existing collateral is unknown.