It takes deep pockets and some pretty compelling reasons to plunk down $477 million on anything, especially a suburban mall.
In this case, that's how much Simon Property Group (NYSE: SPG), Taubman Realty Group, and Nuveen have committed to a joint venture refinancing the massive International Plaza and Bay Street in Tampa, Florida.
That's according to a Commercial Observer examination of a Fitch Ratings report on the $477 million in debt originated by Goldman Sachs (NYSE: GS). Taubman Centers opened the two-story mall in September 2011 on a 150-acre site near Tampa International Airport, and it has more than 200 stores and restaurants.
The Oct. 13 article says about 740,000 square feet of the 1.2 million square feet under the mall's roof will serve as collateral for the floating rate, commercial mortgage-backed securities (CMBS) that will retire about $439 million in existing debt and recoup about $36 million in equity and cover closing costs.
Simon Property Group was already the nation's largest mall owner and operator when it bought 80% of Taubman Realty Group and acquired all the malls owned by the rival real estate investment trust (REIT) in a bit of a shotgun marriage that consummated in December 2020. Nuveen, meanwhile, is the investment arm of TIAA.
Some major anchors left out of the collateralization
The Fitch report says that 740,000 square feet of collateralized space does not include anchors Nordstrom, Dillard's, and Neiman Marcus. Bay Street, meanwhile, is an outdoor entertainment and lifestyle area also on the property.
The Commercial Observer article says the mall was not developed as a luxury retail destination, but over the years has become the top mall in the region, with tenants such as Gucci, Louis Vuitton, Apple, and Tesla.
The Fitch report says that about $17.1 million was invested in renovating the aging mall from 2018 to 2020, when Simon became an owner, and now the joint venture plans to invest more than $20 million more in the next five years.
Before the pandemic, in-line sales at the mall had risen every year for six years, reaching $1,300 per square foot in 2019 and then fell to $1,019 in 2020 ($674 without Apple and Tesla) before showing recovery again so far this year, the Commercial Observer report said.
Rent collections, meanwhile, were at 95% in June, the Commercial Observer said, but about 63% of the currently leased collateralized space are in deals set to expire during the life of the new CMBS financing.
The Millionacres bottom line
The "International" part of the property's name is not just window dressing. Besides its proximity to the big Tampa airport, the Fitch report says, about 46% of its shoppers are tourists, typically, and more than half of them come from Canada, the United Kingdom, and Brazil.
The mall is also near a lot of office space, so a return to work and increase in international travel as borders reopen could be in the offing.
Clearly, Simon and Nuveen (and their underwriters at Goldman Sachs) saw past the supply chain snafus and pandemic hangover in the retail space to not add such a prominent property to the list of malls where borrower owners have simply walked away and left them to their lenders.
They also took the opportunity to shed existing financing for lower rates while that's still doable.
Altogether, this sounds like a good thing for everyone in and around this deal and this sprawling chunk of commercial real estate, especially if they're right.