Location, location, location and low leverage preserve mall's rating
Fitch Ratings has kept AAA ratings on the refinancing of commercial mortgage-backed securities tied to an Elizabeth, N.J., outlet mall that has suffered a rash of tenant bankruptcies during the pandemic.
Relatively low leverage metrics, as well as the perception of the suburban New York property’s long-term value, were said to be the major reasons.
The BAMLL Commercial Mortgage Securities Trust 2020-JGDN deal is split into a $337.25 million tranche and a $17.75 million retained piece, both rated AAA and given a stable outlook by Fitch.
The larger tranche offered in the Rule 144A market priced at 275 basis points over one-month Libor, which on Nov. 18 rested at 0.14650%.
Fitch said that the $355 million transaction was used to refinance existing debt of $350 million and pay closing costs.
The Mills outlet mall has been hit hard by the coronavirus, with several major tenants filing for bankruptcy, including Century 21, Modell’s, Ann Taylor and Brooks Brothers. Those tenants account for 9.5% of net rentable area (NRA) and 7.3% of the property’s base rental income. Several tenants have been granted deferrals, Fitch said, and the AMC Theater anchor tenant, which makes up 8.5% of NRA, is a “retailer of concern.”
One plus was that loan-to-value (LTV) and debt service coverage ratio (DSCR) are respectively 38.0% and 3.79 times on an appraised property value of $935 million, according to Fitch.
The ratings firm also pointed to the mall’s “strong location and competitive position, in a dense commercial and residential neighborhood in New Jersey with close proximity to New York City.
“The property draws from a dense local trade area within five miles, and a wider trade area that includes 2.9 million potential customers, given that the property is highly accessible along a network of major roadways including the New Jersey Turnpike,” Fitch said. It added that it “assigned The Mills at Jersey Gardens a property quality grade of 'B+'.”
“The mall performed strongly in 2019 and had low occupancy costs, and after hitting a low in May during the regional lockdown sales have subsequently improved to about 65% of pre-pandemic levels as of August for tenants that are open and reporting sales,” Fitch said.