Denver-Area Retail Property Backing Troubled CMBS Loan Sells for $48Mln

Hutensky Capital Partners has paid $48 million, or just less than $110/sf, for the Northglenn Marketplace, a 439,063-square-foot retail center in the Denver suburb of Northglenn, Colo.

The Hartford, Conn., investment manager bought the property, at 10578 Melody Drive, from C-III Asset Management. The special servicer was overseeing it on behalf of Morgan Stanley Capital I Inc., 2006-HQ8, which had held a $50.9 million mortgage against it. Faris Lee Investments represented C-III in the transaction.

Hutensky bought the property on behalf of its Hutensky Capital Partners III fund, a nearly $200 million investment vehicle that it had raised three years ago.

C-III had started overseeing the loan, which had an original balance of $64.5 million, in 2011 because it was expected to default. At the time, the property was owned by the former Excelsior LaSalle Property Fund, a commingled investment vehicle that was turned into a non-traded REIT, JLL Income Property Trust, in 2011.

Excelsior had purchased the property for $91.2 million in 2005. The following year, it operated at a 96-percent occupancy rate and generated $5.6 million of net cash flow, according to servicer data compiled by Trepp LLC. That was more than half again as much as needed to fully service the loan, which required only interest payments for its first two years. After that, it started amortizing on a 32-year schedule.

The property, developed in 1999, was underwritten with the assumption that it would operate at a 99-percent occupancy level and generate $5.3 million of cash flow.

Trouble started brewing after the Great Financial Crisis, and things worsened. Since then, it lost its Border's Books, Circuit City, Sports Authority and Bennigans tenants, each of which filed for bankruptcy. Occupancy had plunged to 63 percent earlier this year from 96 percent in 2008.

With cash flow sharply less than needed to service the property's loan, Excelsior gave up and turned the property over to C-III in a deed-in-lieu of foreclosure. In a regulatory filing, it said that while it was able to lease some space to new tenants, the rents it was able to charge were lower than that paid by the tenants that had vacated.

Other tenants since have vacated, including Marshalls and Ulta, which hurt the property's value. Last year, it was appraised at a value of $42.4 million. That compares with the property's $88 million appraised value in 2005, when the CMBS loan was written.

Tenants still occupying space include Bed Bath & Beyond, which leases 33,600 sf through January 2022; Ross Dress for Less, which occupies just more than 30,000 sf through January 2020, and Petsmart, which occupies 29,000 sf through June 2025. Lowe's Home Improvements, meanwhile, occupies a 140,000-sf store that it owns at the property.

Servicer data compiled by Trepp indicate that the property generated only $157,000 of cash flow during the first half of the year.

Faris Lee, which is headquartered in Irvine, Calif., had hired a leasing team from Sullivan Hayes Brokerage of Denver to help develop a strategic vision for the property and worked with the city of Northglenn to create incentives for the property's redevelopment.

The brokerage said that given the property's prime location, at the confluence of the 25 Freeway and 104th Avenue, it would be an ideal location for a theater or other entertainment venues. The Denver area, it noted, was the sixth fastest growing city in the country.

Northglenn Marketplace sits on a 55-acre site that until its construction housed the Northglenn Mall, an enclosed shopping center with some 850,000 sf that was developed by a venture led by Jordon Perlmutter, among the Denver area's most prominent developers. He died two years ago at the age of 84.

The property during the 1980s suffered, mostly from newer competitors, losing anchors Sears and JCPenney - well before the two retailers were troubled. The property then was redeveloped into its current open-air guise.

While the CMBS loan had a balance of $50.9 million, a total of $616,956 was advanced against it. And those advances accrued another $552,501 of interest, bringing the loan's total exposure to $52.2 million.

Comments? E-mail Orest Mandzy, or call him at (267) 247-0112, Ext. 211.


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