Real Estate

Distress Hits Town East Mall, $66.4M CMBS Loan Sent to Special Servicing

Town East Mall's $66.4M loan sent to special servicing amid Brookfield's struggles in booming Dallas-Fort Worth market.

By Tal Alexander

7/10, 18:29 EDT

Key Takeaway

  • Brookfield Properties' Town East Mall faces financial distress with a $66.4 million CMBS loan balance sent to special servicing for maturity default.
  • The mall's appraised value dropped from $254 million in 2012 to $187 million in June 2021, with occupancy at 80%.
  • Brookfield is actively refinancing its properties, securing significant loans like a $265 million for a California mall and $750 million for Manhattan’s 1 Liberty Plaza.

Brookfield's Struggles Amid Booming Retail Real Estate

Retail real estate in Dallas-Fort Worth is experiencing a significant boom, yet not all property owners are reaping the benefits. Brookfield Properties' Town East Mall in Mesquite exemplifies the challenges faced by some, as the Toronto-based commercial real estate company has struggled for over four years to pay off a CMBS loan package issued in 2012. According to Morningstar Credit, a $66.4 million balance on one of the loans has been sent to special servicing for maturity default. This loan, originated by Barclays, was set to mature in June 2020 but has been defaulted on multiple times, with the fully extended maturity date now pushed to June 1 of this year.

The Financial Details and Historical Context

The Town East Mall loan represents about 40 percent of the total loan pool, which also includes a loan for Tucson Mall, another Brookfield property. Both loans share the same maturity date. Originally, the deal included a loan for Fashion Place in Murray, Utah, which was repaid in June 2021. Town East Mall, built in 1971 and anchored by major retailers like Dick’s Sporting Goods, Dillard’s, J.C. Penney, and Macy’s, saw its appraised value decline from $254 million when the loan was issued to $187 million in June 2021. Brookfield Properties, a subsidiary of Brookfield Property Partners, has been trying to refinance its malls after $1 billion worth of loans tied to its properties were in distress last year.

The Broader Market Dynamics

The challenges faced by Brookfield Properties are not isolated incidents but part of a broader trend affecting commercial real estate. According to data compiled by Preqin, about 64% of the $400 billion of dry powder set aside for property investment by private equity firms is targeted at North America. This focus is driven by the significant discounts available in the U.S. market, where office values fell by almost a quarter last year. The Mortgage Bankers Association notes that almost $1 trillion of debt linked to commercial real estate will mature this year in the U.S., creating more opportunities for buyers of distressed assets. This situation is exacerbated by a gap of almost $150 billion between the volume of loans coming due and new credit availability, as estimated by PGIM.

My Perspective on the Market Implications

The situation at Town East Mall and other Brookfield properties highlights the precarious state of commercial real estate, particularly in the retail sector. While the Dallas-Fort Worth area is booming, high interest rates and the aftermath of the pandemic have created a challenging environment for property owners. The influx of private equity looking to capitalize on distressed assets could lead to significant shifts in property ownership and valuations. As John Brady, global head of real estate at Oaktree, noted, we could be on the precipice of one of the most significant real estate distressed investment cycles of the last 40 years. This focus on North America may leave other regions struggling to attract investment, potentially delaying their recovery.