Struggling retailers have lenders reassessing the risk of retail loans. Over the past two years, poor retail sales have resulted in a slew of store closures and bankruptcies. It seems that not a month goes by without more bad news, most recently the closing of the Bon-Ton department store chain, affecting approximately 200 stores, that was announced in mid-April.
While B-quality malls are very difficult to finance, the CMBS conduit loan market is still actively lending on all other retail assets, providing relatively high leverage loans up to 75% LTV on acquisitions and 70% on cash-out refinancing. CMBS is particularly aggressive on food- and drug-anchored shopping centers, as well as unanchored neighborhood shopping centers with service-oriented and restaurant tenants.
“We are actively quoting and closing retail loans right now as other lenders begin to back off on the asset class,” commented Michael Sneden, Executive Vice President at ValueXpress. “We just closed a $4.8-million loan on a service-oriented retail-office property in Parkland, Florida with a 10-year term/30-year amortization at 75% of purchase price and closing costs (click here for details), and we have three other similar transactions in the underwriting/closing process.
CMBS is able to close high-leverage loans on retail properties because underwriting is thoughtful when it comes to tenant risk. CMBS is able to structure for weaker tenants by providing for cash-flow sweeps in advance of tenant renewals or bankruptcies. This provides landlords with the capital to replace tenants or reposition properties, as needed, to better performing retailers.