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Originally Posted by WVUmatt
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Spent much of the day tapping resources for details on the transaction and what it may mean for CTC. I was a bit anxious when it was announced that a "private party" purchased the mall, but I have since become optimistic about the entire ordeal.
Prior to today's sale, Cafaro owned 50% of the mall, Forest City owned 26% and QIC owned 24%. When it went into default, all of those parties were a party to the default. This sent the property into receivership under the managerial control of CBRE. CBRE then tabbed Boyd Resources to act as receiver. CBRE stopped payment to CURA for the monies generated by the parking garages. A ruling was made that CBRE would garner $800,000 and Boyd Resources $300,000 of the escrow produced by those revenues. I had expected this to go to CURA.
This brings us to today's sale. The bidding process lasted less than 30 seconds. The process was opened and a lawyer representing the buyer offered a bid of $35 million. Bidding was immediately closed and the $35 million dollar bid accepted. I took some photos of the auction as it took place. There did not appear to be any other bidders present but had there been, they would have had the briefest moment to counter the first offer. It seemed very orchestrated to me. It's West Virginia, what do we expect?
The media present wanted to know who the private buyer was, but that had already leaked. US Bank was the buyer and this is the good news part, I think.
US Bank holds the debt load on CTC. It is reported in the papers as being $93 million but sources close to the process report that it is $98 million. Many had assumed that when the mall was auctioned it would be for the debt load, which is common. If that does not take place, the lien holder (US Bank in this case) could challenge the auction for a period of 18 months (West Virginia law) and place their own superior bid to challenge. But, because US Bank is the lien holder and the bidder, a different situation has arisen.
US Bank has on the one hand a lien for $93 million/$98 million and has just bid and won at auction in the amount of $35 million. I am sure an institution that size of US Bank has multiple departmental organs, each with their own P&L procedures but essentially, US Bank is now on the hook for $128 million/$133 million for sole ownership of CTC. Cafaro+Forest City+QIC are not completely out of the picture after 36 years of rape.
The good news Is somewhat hidden in this telling. Because most expected that CTC would be sold for the debt load of $93 million/$98 million, CTC would be essentially purchased for free. The Mall has a tangible value of circa $150 million dollars. That would be a huge loss to the everyone that had an original stake in the building of CTC. While $35 million is far short of the $150 million estimated value, it is far higher than zero and shows a commitment to the property by US Bank.
I did some further research into US Bank and this is not the first such mall they have found themselves on the hook with. Lakeforest Mall in Gaithersburg MD is the nearest I could locate. US Bank took over the property when the owners of that mall defaulted on a $100 million dollar after paying off all but $19.1 million. US Bank held the mall for roughly a year while the receivership was processed and then bought the mall for the amount of debt load. That is different than what took place at CTC, where US Bank absorbed the debt load and paid an additional $35 million. But, after they purchased the mall through an auction for $19.1 million they immediately sought a buyer for the property.
They purchased the mall on August 22, 2017 and they seemed to have obtained an interested buyer almost immediately but as of February 2018, nothing had been finalized. Nothing new on that transaction could be found through various internet sources and US Bank is still listed as the owner. The city of Gaithersburg has created an enterprise zone around the mall to help in the resurrection of the property.
It may be that the developer that they had in the beginning had indigestion. It had just undertaken a $45 million dollar of another property prior to the availability of Lakeforest Mall.
Because CBRE was tabbed as manager for CTC when US Bank took over as owner when Forest City defaulted, I do not expect a change management. I do expect Boyd Resources to exit the picture as the mall is no longer in receivership. I do not know if the parking garages were included in the sale, but I do know that CURA did not surrender the land beneath them so they will still need be to paid, regardless of who owns the structures. I assume US Bank now owns the garages. They do not own the anchors. Each are owned by their tenants with the except of the Sears anchor which is owned by KM Hotels of Richmond VA.
The good details are:
CTC is no longer in receivership or bankruptcy.
The estimated value of the mall exceeds the current price paid by US Bank.
At least one middle man has been removed - Boyd Resources.
CURA should begin to be paid again.
Contracts and Leases can be signed.
The Unknowns:
US Bank does not seem to have a strong track record in re-selling properties like this and in the case of Lakeforest Mall has done no updating to it since they purchased the property. That is 17 months and counting as of this date.
There is nothing to stop someone like Forest City or QIC or Cafaro from becoming the "new" buyer.
Macy's is leaving regardless and now that they are doing so, will Belk's, move into their location. Remember Macy's did not want Belk's in the mall and Macy's still owns that anchor.
The Bad details:
It seems that the entire management staff will be retained for now. There is a lot to be said for continuity in these sorts of businesses, but in this case. I think new blood is called for and every current employee at CTC should be eliminated and new faces put in there. These are after all, 30+ year employees that were married to Forest City and their shady dealings.
CTC has lost roughly half of it's smaller stores and 3 of its 4 anchors.
Mayor Goodwin is a big fat zero. That press blurb was a typical cut and paste job every politician sates when something like this happens. It means nothing because they will do nothing. Besides it was the previous mayor that allowed all of this to happen. So why would anyone think the mayor will or can help?
The Best details:
CTC has location. Unlike Lakeforest Mall in Gaithersburg MD, CTC is located in a CBD, next to a regional coliseum and convention center, flanked by good hotels and a district federal court house among other notables.
It is now worth more than it's debt.
Both the Marriott and Embassy have either started or will soon start an unknown level of renovations. I think Embassy's updating is going to be more extensive than Marriott's.
Obviously there is still more to learn about this process and while more will come out, I think all-in-all, CTC has had a bit of good luck, especially if it can be sold to a developer that has a vision and sees the mall as an investment.