Brookfield Venture refinances Oakbrook Center shopping mall with a bundle of Morgan Stanley debt

The owner of the Oak Brook property, a joint venture between Toronto-based Brookfield Property Partners and a subsidiary of the California Public Employees’ Retirement System, refinanced it with a $ 319 million mortgage and a $ 156 million mezzanine loan , according to a report by Fitch. Ratings, a New York-based debt rating agency.

Amid falling rental income – or increasing losses, in some cases – and falling property values, refinancing a large mall is much harder than before. Many lenders avoid the industry altogether. And many mall owners are not generating enough income to cover their existing loan payments.

“Growth in e-commerce, tenant bankruptcies, store closings and declining in-store sales have led to an increase in defaults from sponsors, including Brookfield, on non-recourse business loans,” the Fitch report says. .

But Oakbrook Center stands out from the crowd. Not only was the Brookfield company successful in securing new loans for the 2.2 million square foot property, it was successful in increasing its debt. He used the $ 475 million in new loans to repay $ 425 million in existing debt, according to the Fitch report. The company is using some of the remaining money to reinvest in the mall and create reserve accounts to pay rental expenses and other costs, the report says.

Considering the mall’s estimated value – it was recently valued at $ 1.22 billion, according to Fitch – $ 475 million is not a worrying level of debt. Fitch estimates that Oakbrook Center will generate a lot of cash flow to cover the debt payments.

A spokeswoman for Brookfield Retail Properties, which manages Brookfield’s portfolio of shopping centers, declined to comment. Other local Brookfield malls include Northbrook Court and Water tower square.

Built in 1962, Oakbrook Center has undergone a major transformation in recent years, including around $ 300 million in capital improvements since 2015, according to Fitch. The property includes three department stores – Macy’s, Nordstrom, and Nieman Marcus – an AMC Theaters cinema and a food court. Major tenants include LifeTime Fitness, Crate & Barrel, Zara, Banana Republic, and Apple.

Surrounded by affluent suburbs and a robust office market, Oakbrook Center offers the kind of demographics retailers need. But its performance has declined, especially as the coronavirus has kept buyers at home and left many retailers struggling to pay rent. The mall is 82.3% occupied, but tenants paid only 80.3% of the rent owed in September, according to Fitch. Brookfield has allowed many tenants, including AMC, to defer their rent.

The Fitch report shows Oakbrook Center’s profits were down even before the pandemic. The property’s net operating income fell to $ 67.4 million in 2019, down nearly 7% from 2017. Fitch expects its NOI to drop even more, to $ 53.3 million.

Brookfield and CalPERS refinanced the mall with debt from New York-based Morgan Stanley. At $ 475 million, this is the largest refinancing of a commercial building in the Chicago area since June 2018, when the owners of the Aon Center office tower in downtown Chicago contracted a loan of $ 678 million, according to New York-based research firm Real Capital. Analytic.

Morgan Stanley repackages Oakbrook Center’s $ 319 million senior loan in commercial mortgage-backed securities, or mortgage bonds. Unlike a typical CMBS offer, which can include dozens or even hundreds of mortgages, Morgan Stanley’s offer will only include the Oakbrook Center loan.

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