L Brands, a global retailer, and certain principals of The Georgetown Co., a property developer, are tapping the securitization market to do a cash-out refinancing of a super-regional retail complex in Columbus Ohio.
Barclays and Morgan Stanley are using a $512 million portion of a $700 million whole loan on 1.3 million square feet of Easton Town Center as collateral for BBCMS 2016-ETC, according to Kroll Bond Rating Agency.
The loan, which was originated in July by Barclays Bank and Morgan Stanley Bank, has an annual coupon rate of 3.62% and pays only interest, and no principal, for its entire 10-year term. Proceeds were used to refinance a mortgage obtained by the owners in 2007 and return $262.9 million to the property owners.
The collateral for BBCMS 2016-ETC consists of two senior A notes totaling $150 million as well as two subordinate B notes totaling $362.5 million. The remaining portion of the whole mortgage loan is expected to serve as collateral for one or more future securitizations.
In its presale report, KBRA cites the retail center’s strong traffic and sales as the primary driver of its ‘AAA’ ratings for the senior tranches of certificates to be issued by the securitization trust.
For the 12 months ending April 2016, the property reported comparable in-line tenant sales of $742 per square foot; substantially higher than the average in-line sales for U.S. malls of $471 per square foot reported in the International Council of Shopping Centers in its March report. “Easton Town Center is considered the dominant retail center within the Greater Columbus MSA as its sales are significantly higher than the subject’s primary competitor, Polaris Fashion Place,” the rating agency states in its presale report. “The property has a large mix of national tenants, as well as 19 stores that are unique to the area, and draws over 22.5 million visitors annually, which is significantly greater than the 10 million visitors Polaris Fashion Place receives annually.”
The strength of the complex’s traffic and sales helps allay concerns about how its much heavier debt load following the refinancing, as well as the lack of amortization. The new loan has a loan-to-value ratio, as calculated by KBRA, or 99.6%. This is the highest of the 15 mortgage bonds backed by a single property that KBRA has rated to date, which ranged from 69.3% to 94.4%, with an average of 81.2%.
In its presale report, the rating agency notes that, while the sponsors are clearly cashing out on the property’s recent price appreciation, they have also spent more than $80 million on property improvements and upgrades since 2010, including $25.9 million in renovations and expansions, $11.5 million in capital improvements, and $42.7 million in tenant improvements.