Starwood’s capital group eventually lost control of it troubled a portfolio of regional shopping centers this month, as administrators appointed by an Israeli court chose a partnership to take over seven properties. While this joint venture has already begun to strategize how best to revitalize these centers, the handover is not complete. The main creditors of the portfolio in the USA have yet to approve the agreement, which creates uncertainty for an already complicated transaction.
Maneuvering through retail properties scattered throughout the West and Midwest was a month-long process that began in March, when Israeli Starwood bonds in the portfolio were reduced to C-. In May, bondholders voted to speed up debt repayment and restructuring offers he began to roll inside.
Pacific Retail Capital Partners, based in California, and New East’s Golden East Investors are now the latest bidders. for portfolio. Starwood paid $ 1.6 billion to buy real estate in 2013 from Westfield Group, then refinanced its portfolio in the Israeli bond market.
Pacific Retail and Golden East have been tasked with conducting exclusive negotiations with senior creditors on real estate, the partners said in an announcement to be released on Monday.
These negotiations are taking place on behalf of the holders of 910 million Israeli shekels – about $ 250 million issued bonds subsidiary of Starwood on the Tel Aviv Stock Exchange in 2018. The bonds are subject to debt provided by three separate groups of senior creditors.
Starwood’s portfolio of regional shopping centers, which consist of properties in California, Indiana, Ohio and Washington, had serious problems before the pandemic. The company was hit last year by a class action lawsuit by Israeli bondholders over alleged failure to report risks in the retail sector. The company’s bonds fell just above 30 cents on the dollar before the pandemic and fell further before trading was suspended in June.
Starwood Capital owns a total of 27 shopping malls across the country his website, including another portfolio of four properties does not repay after the maturity of the loan last fall and several others who switched to a special service due to the pandemic.
But the special debt structure of this portfolio of seven trades – with Israeli bonds subordinated to CMBS debt – makes the situation somewhat more complicated.
Court filings and publications on the Tel Aviv Stock Exchange suggest that in particular one higher creditor – the trustee CMBS agreement with one debtor covering five of the seven shopping centers – so far showing little interest in acting in favor of Israeli Starwood bondholders.
Shopping center manager
In Monday’s announcement, Golden East Director Uri Ben-Ezer said the partnership appreciated the “trust and confidence that the trustees” had placed in the joint venture to negotiate on behalf of Israeli bondholders.
But the message submitted by the administrator in Israel also suggests that the Pacific Retail and Golden East proposal in principle won the bid in principle. This is because the main higher creditor rejected several competing proposals, while other offers were withdrawn because they could also be rejected.
What set Pacific Pacific and Golden East’s proposal apart from other offerings was that they would take over the management of the malls instead of taking over. According to their report, the trustees initially favored offers that included the sale of a stake in department stores and considered this option more advantageous to Starwood bondholders – but all such proposals were rejected by the lead creditor.
Starwood itself – in collaboration with investor Mike Kohan – withdrew the offer after finding that it is unlikely to be accepted. The voting of the bondholders was scheduled and then canceled as soon as it became clear that only one option remained.
Any final agreement will be subject to the approval of senior creditors, Israeli bondholders and the Tel Aviv District Court. And if there are indications of dealers’ dealings with major senior creditors in recent months, these dealings may not be easy.
On September 4, CMBS’s trustee filed lawsuits against five stores owned by two of California’s Starwood shopping centers, asking courts to appoint trustees to “seize and blame” the property. Two shopping malls – Plaza West Covina shopping center in Los Angeles County and Parkway Plaza shopping mall in San Diego County – had both turn off again in mid-July amid an increase in new cases of coronaviruses in California.
The chief creditor also claims that when the Tel Aviv court appointed a temporary administrator for Starwood’s bond issuer on July 1, the move constituted a “prohibited change of control” and another default event. Starwood had already repaid the main loan in May when it missed payments, and the loan was transferred to a special trustee later in July.
The administrators and Starwood declined to comment. The representative of the main creditor did not respond to the request for comment.
In a submission dated September 13, Israeli administrators confirmed the acceptance of two lawsuits filed by a major California creditor. “Company administrators are considering complaints and how they will respond.” submission he says.
If the latest agreement is approved, Najla Kayyem of Pacific Retail said the partnership would evaluate each of the seven shopping centers “in a neighborhood context.” According to her, this could include the introduction of new uses of space, the improvement of properties and, in some cases, the transformation of “land use planning”.
Pacific Retail CEO Steve Plenge noted that the deal will be the largest mall transaction in 2020, especially since the start of the pandemic.
He said real estate serves a vital need in the community. “We look forward to building relationships and bringing new life to each of these properties so that they can thrive on improved shopping experiences and activations,” he said.
In documents filed on the Tel Aviv Stock Exchange in support of its offerPacific Retail noted that its directors had previous experience in managing seven shopping centers when they worked for Westfield Group, the previous owner. The company also claims to be “one of two companies hired by CMBS’s special loan managers to manage regional centers on their behalf.”
In these documents, Pacific Retail also noted that “CMBS’s special loan managers do not consider Starwood to be the optimal asset manager in distressed stores.” “It told Starwood’s lack of belief in its ability to create value from real estate,” she added.
Regional shopping centers were among most affected asset classes in a pandemic. Real estate investment funds that own these properties a decrease of 55 percent since the beginning of the year, according to data from Nareit. This is compared to an overall 42% decrease in retail and a 53% decrease in accommodation.
Almost 1 of 10 According to Fitch, CMBS retail loans are now delinquent – much worse than the previous peak of 7.7 percent after the last financial crisis.
And as temporary rent relief and loan relief began to expire While the pandemic dragged on, some mall owners have chosen pass the keys to their delinquent qualities, while others are increasingly aggressive demanding rent from tenants.
Kayyem told Pacific Retail that the company doesn’t care what shape the mall is when it takes over the property. “Shopping centers generally need to evolve to survive in the world we live and shop in today, and we are the ones who can strategically plan and realize this vision.”
“Our strategies shifted long before the pandemic occurred,” she said, “and with our approach, we have been able to stay ahead.”