Brookfield Properties is refinancing one of the largest malls in the Chicago area with a $700 million loan, creating a huge equity cash-out for the owner of a property that has successfully weathered COVID-19 and the loss of large tenants in recent years.
The shopping-mall giant, part of Toronto-based Brookfield Corp., is expected to close next month on a commercial mortgage-backed securities loan for the Oakbrook Center mall west of Chicago, according to a new Fitch Ratings report.
That allows Brookfield to pay off $475 million in existing debt on the 2.6 million-square-foot mall in Oak Brook, Illinois, according to the report. After closing costs, Brookfield will pocket $220 million in equity on the 2.2 million square feet it owns at 100 Oakbrook Court, the report said. The current CMBS loan was taken out in 2020, just a few months into the pandemic.
The new loan’s larger size, at a time of rising interest rates and challenges in financing properties throughout the country, reflects the strong recovery the Oakbrook Center property has made in recent years after losing big retailers such as Lord & Taylor and Sears.
It is the seventh-largest single-asset, single-borrower deal on the year in the CMBS market, and the No. 2 such deal in 2023 for a shopping mall behind Unibail-Rodamco-Westfield’s $925 million refinancing of Westfield Century City in Los Angeles, according to CoStar data.
Brookfield has owned the mall since taking it over as part of a $15 billion buyout of GGP in 2018. Its investment partner for the property is Institutional Mall Investors, a partnership of Miller Capital Advisory and CalPERS, the nation’s largest public pension.
A Brookfield spokeswoman confirmed it is close to finalizing new debt but did not otherwise comment on the deal in an email to CoStar News. News of the financing happened to come on the same day as an unrelated office loan for a downtown Chicago office building, the first in more than a year.
Brookfield’s new CMBS loan will replace debt maturing in November, including a $319 million senior CMBS loan, according to loan reports.
The five-year, interest-only loan will be at 7.65%, slightly better than the current CMBS loan’s rate of 7.73%.
Morgan Stanley is the lead originator, joined by Wells Fargo, Citi and Goldman Sachs. The loan will have a 67.5% loan-to-value ratio, according to Fitch.
Like other big retail investors, Brookfield also has experienced setbacks in recent years amid economic challenges and shifting consumer shopping habits, including walking away from its investment in the massive Water Tower Place vertical mall on Chicago’s Magnificent Mile shopping district, as well as a nearby, standalone retail property at 830 N. Michigan Ave.
Second-Largest Regional Mall
Oakbrook Center is a super-regional mall that opened in 1962. It is the second-largest mall in the Chicago area, behind only the Woodfield Mall in Schaumburg, Illinois.
Tenants include Apple, Lucid Motors, Nordstrom, Zara, Lululemon, Tiffany and Gucci. The mall is 88.2% leased to a combined 220 tenants, excluding a separately owned Macy’s department store, according to the Fitch report. Online brands such as Casper, Bonobos, Warby Parker, Vuori, Fabletics and Untuckit also have become tenants in recent years.
The owners have invested approximately $90 million since 2015 on improvements to the mall, including the construction of a food hall, a parking deck renovation and updating two AMC theaters. They also are investing $177 million in redevelopments, including re-leasing former Lord & Taylor and Sears stores to such tenants as Ballard Designs, L.L. Bean, RH Gallery and Puttshack.
Ground-lease tenants include Life Time Fitness, Pinstripes and a Le Meridien hotel.
Tenants combined for $971 million in sales last year, up from $806 million in pre-pandemic 2019, according to Fitch. Through July, overall sales in the mall totaled $1.07 billion over the past year, the report said.
CoStar News reporter Mark Heschmeyer contributed.