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Town Center owner says loan default won’t lead to mall closure

CHRIS DORST | Gazette-Mail file photo

A representative from Forest City Enterprises, the Cleveland-based company responsible for managing the Charleston Town Center mall, said the mall’s customers should not be concerned over the impending default on a loan taken out by the mall’s owners.

Jeff Linton, a spokesperson for Forest City, said the default will not affect the mall’s customers or retailers who lease space at the mall.

“It does not mean the mall is going to close,” Linton said. “By itself, it will not have impact on tenants in the mall.” As of Friday morning Linton said he was not sure when the $93 million loan would actually default.

Linton said the type of loan the mall took out was partially to blame for the default. The loan is a conduit loan, also known as a commercial mortgage-backed securities transaction. It’s a type of commercial mortgage that’s packaged in a pool with other loans, then sold to second-party investors.

The original conduit loan was brokered and managed by Bear Stearns, an investment bank that folded during the 2008 financial crisis, according to a report from Commercial Real Estate Direct, a news service for commercial real estate professionals.

Linton said it’s difficult to refinance or restructure conduit loans because of their complicated nature. Linton said that unlike a normal mortgage, Forest City cannot directly negotiate with a bank over a conduit loan. “There’s no one person you can just sit down with,” Linton said.

Now a special servicing firm — a company hired by investors to collect on mortgages that are either in default or delinquent — will control the loan. C-III Capital Partners, an asset management group, is the special servicer for the mall’s loan, according to Fitch Ratings, an international credit rating agency.

The Town Center is one of several shopping centers nationwide to default on their CMBS loans over the past few months, according to Trepp, a real estate data service. Loans taken out by shopping centers in Missouri, Colorado, Texas and New Mexico were also transferred to special servicers in July and August.

“It’s not an ideal situation, but it’s not unusual for the times,” Linton said.

Linton said Forest City’s priority for the Town Center is determining how to finance the property. Because of that, finding tenants for vacant storefronts, including the former Sears location, may take a backseat, he said.

Linton said the news will not affect Forest City’s timeline to sell their stake in the mall to Queensland Investment Corp., an Australian investment company. Linton said they still plan to finalize the deal by the end of the year.

Queensland already owns 24 percent of the mall after a 2013 partnership with Forest City, which now owns 26 percent of the mall.

Cafaro Co., based in Youngstown, Ohio, owns half of the mall. They declined an interview request, directing all questions to Forest City.

The Charleston Urban Renewal Authority owns the land the mall sits on. Ron Butlin, CURA’s Executive Director, said the agency is concerned about the loan, but remains “cautiously optimistic.”

Language in Forest City’s joint development agreement requires the company to pay a 10-percent fee of the gross sales price if it were to ever sell the property. CURA voted to waive that fee in March, which would have come out to about $13 million, for the pending sale in March. At the time Butlin said if CURA had not waived the fee, Forest City may have backed out of their plans to sell the mall.

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