SCOTT Trust is preparing to raise $700 million in commercial mortgage pass-through certificates that will ultimately finance the upscale Scottsdale Fashion Square, one of the country's highest performing shopping malls, based in Scottsdale, Ariz.
The landlord's fee simple and leased fee interest in the mall will secure the mortgage loan, and the pass-through certificates represent the beneficial interest in the trust portion of the $700 million loan, a five-year, fixed-rate, interest-only commercial mortgage, according to Fitch Ratings, which will assign ratings to the notes.
The whole loan is evidenced by nine senior pari-passu promissory notes with an aggregate principal balance of the securitization amount, according to a Fitch Ratings pre-sale report. The rating agency also noted that the A-1-S1 trust notes, as well as the A-2-S1, have an original aggregate original principal balance of $500 million, while the rest comprises non-controlling notes that will not be part of the trust, but are expected to be folded into one or more future CMBS transactions.
Scottsdale Fashion Square reported overall sales of about $849.1 million, excluding department stores, as of yearend 2022. This helps contribute to the property's low leverage, with a debt service coverage ration (DSCR) of 1.43x and a loan-to-value ratio of 61.1%, according to Fitch Ratings.
The Macerich Company, the mall's owner, has invested some $377 million to redevelop the property, such as adding a luxury wing and expanding the property's exterior along the main entryway to include several high-end restaurants. The landlord also funded tenant improvements, according to Fitch.
As of the December 2022 rent roll, Fitch says, the improvements contributed about $15.4 million in incremental rental income, plus more than $310 million of additional sales volume. More investments are in the way, too, namely between $80 million and $90 million to develop another luxury wing—to include an 11,000-square-foot Hermes store—over the next two years.
True enough, Scottsdale Fashion Square is a strong property, but Fitch noted a couple of potential credit negatives. For one, the refinance includes a $274.5 million cash-out, or equity withdrawal. Also, three tenants—Elephante, Hermes and Zimmerman—had signed leases, but hadn't opened their stores. That leaves a $14.5 million of remaining gap rent, free rent, leasing commissions or other landlord obligations still outstanding.
Fitch expects to assign ratings of 'AAA' to classes A and A-s notes; and 'AA' to the HRR and X classes. All of the notes have a legal final maturity of March 2040.
