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Shopping Centers Today -> August 2002
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MACERICH SEEKS TO CUT FLOATING DEBT EXPOSURE
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| Macerich will use some of its $360 million in fixed-rate financing to replace a construction loan on Chandler Fashion Center, Phoenix. |
The Macerich Co. is shopping for about $360 million in good permanent loans, and it is studying offers from lenders.
A portion of the funds, about $160 million, will be used to replace a construction loan on the Chandler Fashion Center, Phoenix, a 1.3 million-square-foot hybrid center the company acquired when it bought Westcor Partners in May.
But Santa Monica, Calif.-based Macerich is not looking merely to refinance a mall loan; it wants to reduce its entire floating-rate debt exposure, explained company CFO Thomas E. O’Hern. Macerich has traditionally had one of the lowest floating-rate debt profiles among REITs — about 12 percent — but when it purchased Westcor, it assumed some $733 million in debt, swelling its floating-rate obligations to about 35 percent. Though that’s still manageable, O’Hern said, the company intends to reduce its exposure through a combination of interest rate swaps and caps.
“If we refinance $200 million, that would reduce [our floating-rate exposure] significantly,” O’Hern said. By 2004, the combined companies expect to have about $200 million to $300 million dollars of maturing debt.
For Macerich and other retail developers that carry floating-rate debt, refinancing is an attractive option for two key reasons. First, the poor performance of the stock market continues to drive investors to the safety of the bond market, where they drive up prices and push down yields. And second, the 10-year U.S. Treasury bond rate at press time was 4.5 percent, down from a longtime level of 5 percent.
But these low bond rates, which many borrowers use to quote rates on their loans, will not stay low forever — especially if the economic recovery picks up steam.
“Most economists are now calling for rates to move up,” said Darrell Wheeler, a director of commercial-mortgage-backed securities research at Salomon Smith Barney. “If it is a stabilized asset, then it’s probably a smart strategic move.”
Macerich is waiting until after it closes on the Westcor transaction to pursue definite loan agreements. At press time O’Hern said he expects the Westcor buyout to be completed early during the third quarter of 2002.
Chandler
Fashion Center is an upscale indoor and outdoor regional center
anchored by Dillard’s, Nordstrom and Robinsons-May. Macerich
might also seek to refinance by June 2003 a loan on Prescott (Ariz.)
Gateway, which is an enclosed regional mall that opened in March.
KEY COMMERCIAL EXPANDS FINANCE MENU
Key Commercial Mortgage is looking to add to the list of financial services it offers, following its recent purchase of almost all the assets of mortgage loan originator Conning Asset Management. The company says it is considering launching a mezzanine lending program later this year. Officials would not disclose details about the fund at press time. Key Commercial is part of Cleveland-based financial services company KeyCorp.
The purchase of Hartford, Conn.-based Conning gives Key Commercial in-house access to institutional investment dollars. Conning originates, services and securitizes real estate loans, including retail, on behalf of pension funds and life insurance companies. Now that those funds are being pumped into Key Commercial’s portfolio, the company expects to generate between $900 million and $1 billion in permanent loans in 2003, said John E. Case, president of Key Commercial Mortgage.
For their part, Connings 25 permanent lending specialists can improve Key’s relationships with developer clients, said Case.
“Our relationship managers can provide one-stop shopping for permanent and construction loans,” he said. “Before this, we were not filling all of our clients’ needs.”
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Source: Credit Suisse First Boston |
 | Current Issue March 2010 |