And so it begins. Newsday reports what many were expecting: "The owners of the Mall at The Source in Westbury have defaulted on a $124-million interest-only balloon loan." The data was caught by Zero Hedge favorite TREPP: this could be the beginning of the great unravelling for even the heretofore "healthy" REITs.
The mall - where stores of bankrupt retailers Fortunoff and Circuit City are liquidating their goods and where Steve & Barry's once had a location - had a 10-year-old balloon loan that matured on March 11, said Thomas Fink, senior vice president of Trepp, which tracks the performance of commercial real estate loans that have been securitized. The loan servicer, LNR Properties of Miami, listed the loan as a nonperforming mature balloon loan, he said, which means the servicer does not expect the balance of the loan to be paid.
It originally was issued in 1999 by Nomura, and the owner of the mall is listed as W&S Associates. Records from the New York State Department of State show the address of W&S as the Simon Property Group, owner of the Roosevelt Field Mall, Walt Whitman Mall and Smith Haven Mall. The records were unclear regarding the ownership composition of W&S.
"What's been happening is that more and more commercial properties have been having trouble refinancing balloon payments that are coming due," Fink said. "There's no market right now or the market is not giving them the proceeds or the rate they want to refinance the mortgage."
This is a story we will be following closely as it fits closely with our expectations that the CRE default explosion will wipe out the bulk of "equity" value at highly leveraged public REITs.
The oracles at RBC have decided to go all out here, and have lowered their target price on SPG from $80 to $70, which is only a 100%+ rise from current levels. Talk about a gutsy call.
Disclosure: No positions