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Simon Property Group refinances two malls
BY RICHARD MIZE
Published: April 1, 2009Buzz up!

Indianapolis-based Simon Property Group has executed cash-out refinancing of Penn Square Mall in Oklahoma City and Woodland Hills Mall in Tulsa and paid higher rates on two loans to do it.

Simon has been raising cash for operations and to pay down debt. Simon sold 17.2 million shares of common stock last week at $31.50 per share, considered to be at a heavy discount, and sold $650 million of senior notes at 10.35 percent due in 2019. The offerings raised about $1.2 billion.

In Oklahoma City, Simon completed $100-million mortgage financing for Penn Square Mall. The interest rate on the seven-year loan is 7.75 percent. The previous loan on the property was $65.8 million at 7.03 percent.

In Tulsa, Simon completed $97.5-million mortgage financing for Woodland Hills Mall.

The interest rate on the 10-year loan is 7.79 percent. The previous loan on the property was $78.6 million at 7 percent. Each loan was originated by a major insurance company.

Refinancing at a higher rate shows Simon’s need for cash and the relatively high cost of financing now even when credit is collateralized, said Jim Parrack, senior vice president at Price Edwards & Co., commercial real estate firm in Oklahoma City.

"My initial thought upon seeing the terms is a bit of shock at the rate. It’s significantly higher than it would have been less than a year ago,” Parrack said. "Simon’s refinancing reflects difficulties in both the capital market and the mall sector. Clearly lenders, particularly life insurance companies, are being conservative and see greater risks related to regional malls and mall owners despite the fact that both these properties are doing well and lead their respective markets in sales.”

Getting such loans "for malls” is remarkable considering the reluctance of capital and the recession, which is hitting retailers hard, said Tim Strange of Sperry Van Ness/William T. Strange & Associates in Oklahoma City.

"It’s retail, and we know what’s happening to retail right now,” Strange said. "It’s good news.”

Simon’s securing of new financing shows that its Oklahoma malls are in good shape, Parrack said.

"The ability of Simon to get these deals done in the current environment speaks to their strength and the attractiveness of both Penn Square and Woodland Hills,” he said.

is this good or bad?

this company cares not about oklahoma. Simon Property and General Growth are both teetering. It would be better if local property was in local hands. the rents paid by merchants leave the state, how is that helping OKC?

Yes, but the SALES TAX stays IN OKC, and SALES TAX is where the money is at for cities. Simon has been a GOOD THING for Penn Sq. Look at how much nicer, cleaner, and more upscale it has become since Simon took over. It was just your average OKC mall before Simon (which was well below national average quality). Now Penn is or is one of the highest grossing per sq. ft malls in the region and is the highest for the state. Definitely a good thing.

i like penn sq mall, i have not beenthre is 3 years, due to work, and young kids, and seems like no free time, but i do have a maceys gift card, and a ceesecake factory gift card, so i will be up there soon, i wish crossroads mall had some kind of makeover like penn sq did..

I wish Penn Square had a Disney Store and a children's play area.

luke you took the words right out of my mouth, the only reason i would take my kids to penn, is because of build-a-bear, now if they had a disney store and a childrens place clothing store, that would be great

Doesn't Quail have a Disney store?

We'll take family trips to Quail Springs. (Hey from Del City it counts as a trip! ) Disney Store and the play area... and that bourbon chicken. Man, that's good.

I don't think there is really room for a play area, and Disney Store isn't that big of a draw and has lost it's appeal and exclusiveness years ago. You have to think about the demographics the malls cater to (just look at the overall tenant mix). Penn Sq. is the most exclusive mall in the state, and caters to the more upscale, yuppie crowd. Quail has realized to survive and compete, it has to be more family oriented, it also has more space than Penn thus has a family area.

i guess in oklahoma the more scale yuppie crowd is the normal crowd in other states, because penn really doesnt have that much upscale, i do not see a kiels,neman marcus, louis vuitton,prada,judith lieber,davante,dolce and gabbana, gianni versace, marc jacobs, the walking company, jimmy choo,juicy couture,fendi, I can go on and on, but penn seems to stay away from the normal yuppie american yuppie crowd type stores or penn cant get them.

penn doesn't have any high-end stores..but they have some stores like Banana Republic, J. Crew, Coach (hate this brand), Aldo, etc. that is unique to the OKC area. and Penn Sq used to have a disney store and a huge warner bros. store....but they got rid of it.

Penn sq is a nice mall, doe they still have a full sized sephora store inside the mall? The ones they put in jcpennies in moore is really small and lacks a lot of great mens sephora items

Yeah, someone at the Quail Springs Disney Store told me they used to have one at Penn Square where Williams Sonama is currently. I thought that was interesting...

No. I wouldn't say that Penn Square caters to the yuppie crowd. Its really just targeted to the more sophisticated middle class citizens.

The yuppies are taken care of by Dallas a couple hours to the south. That's where they shop.

Yep, Penn Square has a standalone Sephora on the 2nd floor by the elevator. It's a lot bigger than the Sephora in JCPenney's. the Sephora in penn isn't super huge or anything, but it's a good size, and it has all the makeup brands I normally use.

true, I would rephrase it to the higher, sophisticated middle class compared to quail where it is more average joe. Keep in mind Penn has several of these more exclusive retailers on the waiting list, waiting to get into Penn as soon as a suitable space opens up. that's the big thing that's kept penn from having more upscale tenants, lack of space!

sounds good, now only if penn could get a kiels, they have great products, i can see a kiels going in at penn

thanks metro, it would be great to see some of those names I mentioned earlier in a okc mall.

I fully expect to see some of those very soon once Classen Curve opens....

metro, im from moore, and clueless on anything northside okc, I do know classen, but whats the classen curve? Is it going to be a high retail outside shopping plaza or mall?

Depends:

As an indicator of Oklahoma's relative retail strength: good

As an indicator of Simon Malls' capital strength: not so good

It also could mean less improvement to these properties as they will be serving more debt. Basically, Simon has leveraged the strength of these two properties to raise capital. If they can not ultimately service that debt, it could be very bad, as you then have a failed mortgage on relatively large retail properties in a time when there probably isn't a lot of money out there to save it. They will always have value if they keep their sales up, but you never know how a sale resulted from a foreclosure will work itself out.

A sale from foreclosure will result in a sale... the question is: to whom?

I think Penn Square in the long run is pretty well fixed up to be the premiere retail space in Central Oklahoma. The worst that can happen is a short-term downturn in investment. Even if the mall gets a little run down, the stores will most likely be the same and they'll most likely be pretty nice.

The saving grace is that these sort of stores really don't have anywhere comparable to go so if they want to remain in this market, Penn Square is where they'll stay.

Um, right. Sorry if I confused anyone on that point.

That can easily undue this:

That is, if they can stay in the market. Since we're mostly talking national chains, their overall performance decides their fate much more so than anything that happens in Oklahoma City. That is to say, there is no store at Penn Square that can float any of their parent companies.

So, really, it is possible that if Simon can not afford to reinvest in the properties because of its increased exposure and some national chains close some stores or go under, these properties could suffer a real downgrade. Worst case is that Simon is unable to service the debt in addition to losing some stores and has to liquidate the property with fewer tenants, possibly even with a couple less anchor tenants and a bargain buyer has to fill the vacancies with lower quality merchants while none of the major department stores or niche chains are looking to expand.

But that's just doom and gloom you'd most likely hear from Baby Boomers. : )

Fact is, retail hasn't quite dropped like most thought it would have by now.

But the sales have been terrific.