Commercial Real Estate and Shopping Centers and Simon Property Group and Real Estate Investment Trust and Retail and Washington Square and Real Estate & Retail

Simon hands over Washington Square to lender

August 22, 2014

Simon Property Group Inc. has given up on the struggling Washington Square Mall, turning over control to a lender.

The Indianapolis-based shopping mall owner in December stopped paying on a $14.5 million loan balance, one of two mortgages on the property, Bloomberg data shows. The mall, which counts Target and Dick's Sporting Goods as anchor tenants, is now being managed by Jones Lang LaSalle until a buyer is found.

Simon voluntarily handed over the deed to the property Aug. 6, eliminating the need for a costly and lengthy foreclosure proceeding.

Simon had two mortgages on the 936,000-square-foot mall with a balance of more than $27 million—the $14.5 million loan and another with a $12.8 million balance. The second loan was considered a "hope note" since 2010, when the lender acknowledged it was unlikely, given the mall's value, that the note would ever be paid back. At the time, the parties valued the mall at $14.1 million.

The first-lien mortgage on the mall is a so-called securitized loan owned by multiple investors and managed by Wells Fargo.

Simon sent signals in recent months that it might relinquish control of Washington Square. In February, the company for the first time removed Washington Square from its mall listings, instead classifying it among a hodgepodge of “other properties,” in a filing with the Securities and Exchange Commission. The company also did not include the mall among properties it spun off into a new company called Washington Prime Group.

The mall is no longer listed on Simon’s website. A Simon spokesman didn’t return calls seeking comment.

Simon’s decision coincides with a precipitous drop in the mall’s occupancy—which as of Dec. 31 was just 43.8 percent, the lowest of any of Simon’s 295 U.S. properties, an SEC filing showed. Occupancy was a respectable 86.6 percent in 2011 before slipping to 77.2 percent the following year.

A lack of residential and business growth in the area has kept Washington Square from keeping tenants, said Bill French, a veteran retail broker who serves as senior managing director with Cassidy Turley.

“Washington Square Mall’s been under pressure for a number of years,” he said. “There have been some positive signs, with new investments, but it’s still under a lot of pressure.”

Earlier this year, Foot Locker moved to a nearby strip center, and one of its original tenants, MCL Cafeteria, closed after 40 years.

The mall still has some large anchor tenants, including Sears, Dick’s and Target. Earlier this month, the International Plaza Marketplace, where multiple vendors can sell their wares, opened in the anchor space once occupied by L.S. Ayres. But most of the small spaces that aren’t vacant are occupied by second-tier tenants such as Dr. J’s Beauty Supply and MMA Fit Club, a mixed martial arts studio.

Washington Square opened in 1974. Simon acquired it in 1996 as part of a merger with DeBartolo Realty Corp. Simon renovated the mall in 1999.

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