Mall at Partridge Creek faces reckoning amid pandemic, debt
The Mall at Partridge Creek faces a challenging year that could lead to foreclosure, a predicament experts attribute most directly to the booming growth in online shopping spurred by the 10-month-long COVID-19 pandemic.
Starwood Capital Partners, the owner of the luxury outdoor mall in Macomb County, hasn’t made an interest payment on its loan in six months. And that’s after initially defaulting on a $725 million mortgage in November 2019 that includes three other mall properties in other states, according to commercial real estate research firm Trepp LLC.
The missed payments signal Partridge Creek’s owners are no longer interested in keeping the mall, said Manus Clancy, Trepp’s senior managing director. “The loan now comes due next month, and if I were to guess, I think this is coming back to the lenders as real estate owned,” he said.
“It could be anywhere from two months to a year. It really depends on whether or not the owners of the properties want to fight for the asset to try to keep it or not.”
Starwood Capital Partners declined to comment.
This crossroads for Starwood Capital’s Partridge Creek play comes amid changing trends in retailing turbocharged by the pandemic. Stay-at-home orders and fears of infection fueled an explosion in online shopping and pushed corporate retailers to speed exits from bricks-and-mortar spaces. Instead, more retailers are looking to downsize, not open new stores.
“The internet, which emerged about 25 years ago, is hollowing out the mall the same way the mall hollowed out downtown retail,” said Mark A. Cohen, director of retail studies and adjunct professor at the Columbia Business School. “In the pandemic, e-commerce business — which has been growing double digits for years — has been growing at warp speed out of necessity.”
So what does that mean for the future of The Mall at Partridge Creek and its 600,000 square feet of retail space? Experts say the mall could continue to operate as a shadow of its former self, be revitalized under new ownership or redeveloped for an entirely different use — less than 15 years after the space opened.
The $155 million open-air mall opened to much fanfare in 2007, and for a time its parking lots were full of shoppers visiting the 90 stores and restaurants, including anchor Parisian, later rebranded as Carson’s. The upscale Nordstrom opened a two-level store on the other side of the mall shortly thereafter.
In 2014, the mall’s developer, Bloomfield Hills-based Taubman Centers Inc., sold the property to Starwood Capital, the current owners, in a package deal that effectively unloaded seven properties for $1.4 billion.
“Taubman sort of shed some dead weight to Starwood Capital Partners at the peak of the market,” said Kees Janeway, a retail mall expert and managing partner for Detroit-based Iconic Real Estate who worked for Taubman at the time.
“Whenever you’re talking about heavy debt load you need to know all your tenants are paying top dollar. I think the story of 2020 with respect to retail is there were a number of significant bankruptcies, and we also had dramatically decreased mall traffic.”
Debt exceeds rent
That’s just one developing legacy of the continuing pandemic. According to Trepp, Starwood Capital’s loan was due mature in late 2019, but the company couldn’t refinance at that time. It lost Carson’s as a tenant in 2018, Nordstrom in 2019. Similar losses happened at the company’s other three properties.
Partridge Creek’s operator received an extension in 2019 to last until this year, Trepp’s Clancy said, to “give them more time to find new tenants. I don’t think that’s been very successful.”
Starwood Capital’s four-property portfolio that includes Partridge Creek, he added, is underwater by about $300 million: “The big problem right now is that rents don’t support the debt.”
Clancy said he did not know Partridge Creek’s mall vacancy, but that tenancy across Starwood Capital’s four properties dropped to 76% in 2020 from 96% in 2016. That’s higher than average, according to Moody’s Analytics REIS: in the fourth quarter of last year, mall vacancy rates ran at 10.5%, up from 10.1% in the third quarter and 9.7% in 2019. Moody’s also noted that average mall rent declined 0.8% in the quarter and 1.8% since 2019.
Even though Partridge Creek is better suited for social distancing as an outdoor mall during a pandemic, Janeway said, its success comes down to tenant rent payments: “If your tenants aren’t paying rent and you have debt on property, it doesn’t matter if it’s an apartment building or a mall; push come to shove, you’ve got to make a payment.”
According to its website, Partridge Creek has nearly 80 stores and restaurants open with only three temporarily closed stores. It also lists three new stores, including Versona, a women’s boutique that opened in September. It replaced Charming Charlie, a women’s accessories company.
One recent day at the mall, shopper traffic was light but steady, with people making purchases and returns. Restaurant patrons picked up carryout orders. With reduced capacity rules in place due to the pandemic, Apple and Lululemon had lines of customers awaiting entry. Most other storefronts appeared open for business, while a few empty storefronts dotted the mall’s corridor.
The loss of anchor tenants hasn’t deterred Marysville residents Josie Awe and Jada Kaufmann from making Partridge Creek a regular shopping destination. The friends said they feel more comfortable shopping in an open-air setting.
“I do miss Nordstrom a little bit, but I feel it doesn’t make that much of a difference because there’s so much of a variety here,” Kaufman said. “I think when a store leaves another one comes here, which is nice.”
Columbia’s Cohen predicted that stores like Apple and Lululemon, which were performing strong before the pandemic, will continue to do so. At issue is whether they would want to remain in the mall.
J. Jill recently exited the mall after the company announced last year that it would close some of its stores. Clark’s is closing at the mall, with its last day of business Jan. 25, according to the company. Francesca’s voluntarily filed for Chapter 11 bankruptcy protection last month with plans to sell.
Forever 21 is propped up by landlords after filing for bankruptcy in 2019, Cohen noted: “There are a bunch of tenants who are not likely to be survivors of the pandemic. Then there are some very high-profile retailers that probably don’t want to be left on a sinking ship, like the Apple store, American Eagle, Aerie, things of that sort.”
The future of Partridge Creek and other struggling malls across the country remains to be seen. Trepp’s Clancy says repositioning specialists purchase foreclosed malls at reduced rates, sometimes resulting in spaces with new tenants and different character.
“If you can buy it for 20 cents on the dollar, the rents in place can easily support that number and they can make it work,” he said, adding there are about a dozen examples of the giant online retailer Amazon.com Inc. turning malls into distribution centers.
Janeway said he can see mall properties being fully or partially redeveloped to incorporate self-storage facilities or entertainment complexes: “I think you might see the emergence of some creative ways to reuse those spaces.”
Posted By: The Detroit News on January 25, 2021. For more information, please click here to read the source article.
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