US commercial real estate crisis: Westfield blocks $585 million mortgage payment
Downtown San Francisco has taken another hit after Westfield and its partner Brookfield Properties made the "difficult decision" to stop paying a $558 million loan for the metro area's largest mall due to of “harsh operating conditions,” as reported by the San Francisco Chronicle.
“ For more than 20 years, Westfield has proudly and successfully managed the San Francisco Center, investing significantly in the property's vitality. Given the challenging operating conditions in downtown San Francisco, which have led to declines in sales, occupancy and foot traffic, we have made the difficult decision to initiate the process of transferring management of the mall to our lender to enable them to appoint a receiver to manage the estate going forward ,” Westfield said.
But that's not all: the mall at 865 Market St has multiple lenders tied to its commercial mortgage-backed securities. These lenders were not disclosed. These holders of mortgage-backed securities, which will now default to payment, will incur deadweight losses which will be guaranteed by their related insurance, the CDS. Another wave in the finance pond.
This comes after Nordstrom, which occupies 312,000 square feet at the mall, won't renew its lease in August after nearly four decades in business. When Nordstrom closes, the mall will only be 55% rented, well below the 93% average for other Westfield centers in the United States. Then the Westfield real estate company will simply stop paying the mortgages and abandon the property without remorse. This is how it works in the USA.
Bloomberg obtained a letter to employees from Jamie Nordstrom, the retailer's store manager, who said Nordstrom's closure was due to a slump in sales due to lower foot traffic, adding that "downtown market dynamics of San Francisco have changed radically in recent years”. We suspect Nordstrom is referring to out-of-control crime…
The crisis of this shopping center is linked to the combination of two factors: on the one hand the general crisis of retail sales, between incomes that do not grow and different forms of distribution, but, in the specific case of California and San Francisco, a part important comes to be constituted by the decadence of the personal and social security of the cities. People don't trust them, they don't leave their homes, while shoplifting becomes a real divine punishment.
Meanwhile, the city is also grappling with the tech crisis and regional banking crisis that saw the collapse of Silicon Valley Bank and First Republic Bank. Another segment of the CRE market that is faltering is the office space, where vacancy is high because companies like Salesforce Inc. and Meta Platforms Inc. are shrinking square footage.
The abandonment of companies and the collapse of the housing market prompted the mayor of San Francisco, London Breed, to make a U-turn to finance the police after years of promoting the "defund the police" movement.
In general, however, this situation also further demonstrates the fragility of the US commercial real estate credit market, the so-called CRE, which risk constituting the bombshell of the next real estate crisis.
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The article US Commercial Real Estate Crisis: Westfield Blocks $585 Million Mortgage Payment comes from Scenari Economics .
This is a machine translation of a post published on Scenari Economici at the URL https://scenarieconomici.it/crisi-immobili-commerciali-usa-westfield-blocca-pagamento-mutuo-da-585-milioni-di-dollari/ on Tue, 13 Jun 2023 16:40:32 +0000.