Lightstone Malls Trading at Sharp Discounts

Special servicer J.E. Robert Cos. has struck bargain-basement sales agreements for four Lightstone Group malls in foreclosure proceedings.

Two separate buyers will pay a total of $32.3 million for the properties - less than one-third of Lightstone's roughly $100 million acquisition price in 2004.

Meanwhile, two other troubled Lightstone properties - Macon Mall in Macon, Ga., and Burlington Mall in Burlington, N.C. - are also expected to trade at sharp discounts to Lightstone's acquisition prices.

The four-mall portfolio attracted almost 40 bids from more than a dozen investors, who submitted offers on one or multiple malls. The demand reflected slight improvement in the sector's outlook from a year ago, when some investors wondered whether malls in secondary and tertiary markets would trade at any price.

However, the Lightstone offerings don't seem to presage a flurry of distressed mall listings. Special servicers generally remain more interested in trying to improve leasing and management than in offering properties at fire-sale prices.

Lightstone, a New York investment firm headed by David Lichtenstein, defaulted on a $72.8 million securitized mortgage on the four-mall portfolio last year. J.E. Robert began foreclosure proceedings, and Jones Lang LaSalle was appointed receiver in January. Jones Lang subsequently put the properties up for sale.

An unidentified buyer has agreed to pay $21.3 million for three of the properties: the 508,000-square-foot Shenango Valley Mall in Hermitage, Pa., the 477,000-sf Mount Berry Square Mall in Rome, Ga., and the 407,000-sf Bradley Square Mall in Cleveland, Tenn. The buyer will put up equity for 20% of the purchase price and assume $17 million in restructured securitized debt to cover the balance.

Another unidentified buyer will pay $11 million in cash for the 552,000-sf Martinsburg Mall in Martinsburg, W. Va. That transaction is scheduled to close by yearend.

The initial annual yield for both transactions is around 10%. Mount Berry Square Mall is 71% leased. The occupancy rates of the three other malls range from 86% to 96%.

Jones Lang is also the receiver for Macon Mall and Burlington Mall, which Lightstone acquired jointly in 2005 from Colonial Properties of Birmingham, Ala., for $170 million. When Lightstone defaulted on a $135.2 million securitized mortgage on the properties, special servicer CWCapital began foreclosure proceedings.

Jones Lang is close to finding a buyer for the 764,000 sf that Lightstone owns at the 1.4 million-sf Macon Mall. The space is expected to trade for far less than the $137.5 million allocated purchase price. Meanwhile, the brokerage recently began marketing the 419,000-sf Burlington Mall. The buzz is that the asking price is $10 million, or less than one-third of Lightstone's $32.5 million purchase price. The mall's occupancy rate is 44%.

Another distressed mall recently traded for a fraction of its mortgage balance. A joint venture led by Pacific Retail Capital of El Segundo, Calif., paid just $15 million for 505,000 sf at the 1.1 million-sf West Oaks Mall in Houston. Special servicer LNR Partners listed the space with Holliday Fenoglio Fowler after investor Edward Okun, who acquired it for $102 million in 2005, defaulted on an $86 million securitized loan.

Two of West Oaks' five anchor slots are vacant, and the in-line space is only 50% occupied. The mall attracted 17 offers. In the end, Pacific landed the deal by agreeing to pay cash and close quickly - within five weeks. Pacific managing director Steven Plenge is familiar with the property. He was with Somera Capital when it sold the mall to Okun in 2005.

Meanwhile, a foreclosure auction for the 606,000-sf Westgate Mall in Brockton, Mass., is attracting significant interest. The property generates enough income to cover payments on its $49 million securitized mortgage, but landed in foreclosure because the loan wasn't refinanced at maturity and owner Babcock & Brown is being liquidated. Foreclosure auctions are often formalities under which lenders "bid" to take control of collateral properties. Lenders can make offers of up to the face amount of their loans without having to put up any cash. However, some market players think the expected bids of about $35 million from third parties for Westgate Mall might be high enough for special servicer Bank of America to accept. CB Richard Ellis is overseeing the offering.

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