As the 5.6 million square foot Mall of America prepares to reopen on June 1, it is contending with challenges that correspond to its vast scale. As its executive vice president, Jill Renslow stated in recent interviews, “It’s not like we can just flip the switch and the doors open…we want to make sure that our property is ready and it’s safe.”
But besides the rigor’s mall management faces in reopening, after the coronavirus forced closure on March 17, the mall faces another more existential treat; one of their owner’s own making. Mall owners, Triple Five Group missed making mortgage payments, on their $1.4 billion mortgage for the months of April and May. This is according to the New York based Trepp, a research firm that tracks commercial mortgage-backed securities, or CMBS’s, as was reported on CNBC.
In a statement made to the Minneapolis StarTribune, representatives of Triple Five Group stated that it is making “partial mortgage payments as well as meeting other operating expenses”, but noted revenue had dropped 85% since the coronavirus forced its closure.
Doubling Down On a Dream
As I reported in an August 2019 post, the Triple Five Group, also the developers of the much publicized American Dream Mall, had put up 49% of Minnesota’s signature retail destination as collateral in a high-stakes gamble on their “big dream” near the New Jersey Meadowlands sports complex.
In August 2019, Bloomington MN City officials where the Mall of America is located were surprised to discover the $1.67 billion 2017 guarantee in a bond document, related to Dream’s construction financing. The accidental discovery by Bloomington related to the cities’ efforts working with Triple Five to develop a $250 million water park next to the Mall of America. That project has since been put on hold indefinitely. Baltimore-based retail consultant Nick Egelanian stated at the time, “They were making a huge pet on American Dream and obviously putting part of the Mall of America at risk in it.”
According to Bloomberg, the associated Goldman Sachs GSBD bond sale in June of 2017, represented the largest sale of unrated municipal bonds (aka junk bonds) in 2017. The price of the lowest rated tranche (pooled collection of securities) had fallen to 40 cents on the dollar by the end of April 2020 according to Bloomberg.
Xanadu or Xana-don’t
The problems related to the 15-year long “birthing” of the 93-acre New Jersey American Dream site across the highway from MetLife Stadium have been epic. First christened “Xanadu” in 2004, the project endured two failed attempts to bring it to life, prior to Triple Five Group’s 2011 acquisition. The new owners planned to complete the project in time for the Super Bowl at the Meadowlands Sports Complex in 2014; they missed the mark, by a lot.
It was reported in Bloomberg in early March, that after nearly two decades, the (partial) grand opening of some of the retail stores, restaurants and DreamWorks water park was set for March 19. However, on Friday March 13 representatives of Triple Five sent out a release announcing the opening’s postponement. I will leave it up to my readers as to how the alignment of COVID-19, March 19, and Friday the 13th all played into the project’s never-ending bad Karma.
Triple Five’s Minnesota Appeal
Recently, Triple Five asked the State of Minnesota for financial relief in a proposal which is pending in the state legislature. This is in addition to millions of dollars in tax subsidies that had been approved by the state Legislature for recently completed mall expansion. And even though Mall of America generates about 10% of Bloomington’s tax base and has an outsize impact on the entire state economy, the City of Bloomington opposed the proposed legislation. The Bloomington city manager writing in a May 12 letter to state lawmakers, “We simply have no assurance or confidence that a loan will help the long-term viability of the project.”
Billionaire investor Carl Icahn has made it very public that he believes the U.S. commercial real estate market is going to collapse like the housing market did in 2008. Telling CNBC in March that he believes there will be wholesale defaults on shopping malls and other commercial real estate loans made after the Great Recession. In fact, he is betting on it, having taken significant “short positions” in the commercial mortgage bond market; meaning if he wins, many others will lose. If his predictions bare out, I sincerely hope Minnesota’s coveted and iconic mega-mall is spared.