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Turnberry, Simon tapping CMBS for cashout refi of Aventura Mall

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Aventura Mall Venture, a partnership between Turnberry Retail Holding and Simon Property Group, is tapping the commercial mortgage bond market to refinance a 2.2 million square foot luxury mall 17 miles north of Miami.

It’s cashing out $278.3 million of equity in the process.

While that might seem a surprising sum this late in the credit cycle, the venture just completed a $230 million, 226,000 square foot expansion of the property that opened in 2017, according to Moody’s Investors Service. And since the mall is appraised at $3.45 billion, the owners still have plenty of equity left.

On June 7, the venture obtained a $1.7 billion loan from four banks: JPMorgan Chase, Deutsche Bank, Morgan Stanley and Wells Fargo. As is typical for very large commercial mortgages destined for securitization, it pays only interest and no principal. Unusually, however, the rate of interest is fixed at 4.12125% and the loan has a term of 10 years. By comparison, most large trophy assets financed in the mortgage bond market have shorter terms and pay floating rates of interest.

Fixed rate loans are more attractive to borrowers at a time when interest are rising, allowing them to lock in cheaper funding. But fixed-rate mortgage bonds could be a tougher sell to investors.

A $750 million portion of the mortgage is being securitized in a transaction called
Aventura Mall Trust 2018-AVM; the remaining $1 billion is expected to be securitized in future transactions.

The Aventura Mall has is considered a trophy asset, according to Moody’s. Over the trailing 12-month period that ended in February 2018, the mall reported total gross sales of nearly $1.2 billion making it one of the top five most productive malls in the country. “In the event the asset were to come to market for sale, the property would be highly attractive to a large pool of investors both nationally and internationally,” the presale report states.

Moody’s also likes the fact that the owners still have “implied equity” of $1. 7 billion in the property. The rating agency puts the debt service coverage, based on its “stabilized net cash flow” at 1.99x and the loan-to-value ratio at 85.3%.

Offsetting these strengths is a decline in recent sales. The total gross sales volume for the mall declined from $1.33 billion in 2015, to $1.19 billion in 2016, to $1.15 billion in 2017. Moody’s thinks this decline is at least partly attributable to the strengthening of the U.S. dollar, which diminished the purchasing power of the mall’s international clientele. The trend was recently reversed in the trailing 12-month period ending February 2018, to $1.17 billion.

Another risk factor is potential future competition. The closest retail development currently being proposed is the Esplanade at Aventura project planned for the former Sears site at the Aventura Mall. This 12.3-acre parcel of land is owned by the Seritage Growth Properties REIT. The former Sears anchor box on the site has been demolished and plans have been filed for an approximately 215,000 square foot retail development. Given the size and targeted tenant mix of the development, however, Moody’s expects it to provide “very limited” competition to the Aventura Mall.

The most direct competition in terms of size and scope is the proposed American Dream Miami development, an approximate 6.2 million square foot entertainment park and retail development currently planned for a 175-acre site at the intersection of I-75 and the Florida Turnpike, approximately 14 miles west of the Property.

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