Jingle Mail Haunts Commercial Mortgage-Backed Securities as Property Values Get Slashed Below Loan Amounts

by Wolf Richter
Wolf Street

At the time of securitization into CMBS a few years ago, inflated collateral values led to soothingly low loan-to-value ratios. Then trouble hit.

What options exactly does mall-REIT Washington Prime Group [WPG], now reduced to a penny stock, have when another one of its malls, the 850,000-square foot Oak Court Mall, anchored by Dillard’s and Macy’s, that was once upon a time the premier mall of Memphis, TN, has trouble making the mortgage payment? The mortgage is secured by the mall property, and if push comes to shove, the landlord can just let the lender have the mall and walk away. Jingle mail. But in slow motion.

The 240,000-square-foot portion of the mall that contains the Dillard’s store serves as collateral for a $35.6 million mortgage that has been packaged into commercial mortgage backed securities (CMBS), and investors own them. The expiration date of Dillard’s lease was back in August. Dillard occupies about 21% of that portion of the collateral.

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