CMBS Trusts Take Title to Three Simon-Owned Outlet Centers

Key Highlights

• Three CMBS trusts (MSBAM 2016-C30, MSBAM 2016-C31 and WFCM 2016-BNK1) took title to three Simon Property Group-affiliated outlet centers.
• Properties: Gaffney Outlet Marketplace, SC (359,877 SF); Calhoun Outlet Marketplace, GA (254,062 SF); and a third center.
• The properties secured an original mortgage balance of $83.26M.
• Taking title outright -- not a deed-in-lieu to a third-party buyer -- means the trusts must now operate or remarket the centers directly.

The Signal

• Simon is the country's largest mall and outlet REIT sponsor; its name on the deal didn't keep these secondary-market outlet centers from going the distance to foreclosure.
• Small-city outlet centers are the part of the "retail is back" story that gets skipped -- this is what's actually happening one tier below the flagship malls getting headlines.

Implications

Expect these three centers to reappear as REO listings; special servicers typically move to sell within 12-24 months once they hold title outright. Retail investors chasing yield in secondary outlet centers should treat sponsor brand name as no protection against submarket-level demand problems.

Even a Simon-branded outlet portfolio couldn't outrun its debt -- proof retail's recovery hasn't reached every property tier.