Stresses are growing for shopping and mixed-use centers in Northeast Ohio, as witnessed by a trade report of Crocker Park winning a 12-month deferral on loan and interest payments on loans totaling $140 million.
The 4-million-square-foot property with stores, apartments, offices and the American Greetings Corp. headquarters in Westlake is not alone in such a plight. Other properties as varied as the Pinecrest retail, office and apartment complex in Orange Village and venerable Shaker Square in Cleveland also are navigating financial woes.
The year’s grace on payments for Crocker Park is being reported by Trepp, a financial data source on securitized real estate and corporate loans in New York City.
Fodder even for its podcast, Trepp staffers said that news of the one-year loan deferral is a first for the recession that accompanied the COVID-19 pandemic, and is something not seen since the depths of the Great Recession.
In two articles, one Thursday, Sept. 24 and another on Sept. 17, Trepp said monthly reports filed for bond holders and rating services showed that Crocker Park secured the huge relief in loan terms on Sept. 1.
As a result, Crocker Park did not pay $500,000 in interest for September. Trepp also trimmed Crocker Park from its loan delinquency list, which had shown it was 90 days delinquent in August.
The $140 million is technically part of three loans secured by different properties at Crocker Park, which opened its first phase in 2004. Trepp notes say the most challenged loan is supported by retail properties, while others were made for office space, apartments and garages.
The loan action stems from a 2016 refinance of the mixed-use complex. It does not include Crocker Park’s latest phase, which opened in 2018 and is best known for being the home of the American Greetings headquarters.
Securing such relief is a sign that commercial real estate is in deep trouble as the pandemic and lockdowns hurt the businesses from restaurants to retailers whose rents allow landlords to pay their loans.
Some analysts maintain the pandemic is speeding up challenges that brick-and-mortar retailers already confronted due to online shopping.
The region’s newest mixed-use project, Pinecrest in Orange Village, also faces fiscal woes, but as that property was financed using private equity, its issues are not yet reflected in public filings or statements.
However, the real estate grapevine is electric with speculation about Pinecrest’s primary lender, Square Mile Management of New York City, obtaining a larger ownership stake in the huge complex of stores, restaurants, offices, apartments and a hotel. Square Mile provided a $170 million loan for the $200 million project.
A source familiar with the Pinecrest negotiations said Square Mile is set to assume majority ownership but that the parties still are negotiating terms of the debt relief. Fairmount Properties, the lead developer of Pinecrest which has its office there, will sacrifice its stake in the property but continue to manage it. How much other owners retain depends on the ongoing negotiations and how much additional money they will put into the deal.
In Pinecrest’s case, the source, who spoke on grounds they not be identified because they are not authorized to disclose details, the problems stemmed from the state-ordered lockdown last spring, which shuttered entertainment-oriented retailers, movie theaters and restaurants. However, the source said things are improving as tenants reopen.
Adam Fishman, a principal of Fairmount, disputed that Pinecrest has fiscal problems.
“We are delighted to say we have good relationships with our existing partners and our lender,” Fishman said. “We look forward to a long relationship. Shoppers are responding to our COVID-19 social distancing measures and the best-in-class retailers we have, and will continue to bring to the marketplace.”
However, Fishman did acknowledge the challenge that retail landlords, and others, face.
“When you do a mixed-use project such as Pinecrest, you analyze hundreds of things that might happen,” Fishman said. “One of the things we never thought to underwrite was whether or not people would be able to stand next to each other.”
A major investor and co-developer of Pinecrest is DiGeronimo Cos. of Independence. A spokesperson declined comment in an email to Crain’s.
A Trepp report of nonperforming loans it prepared at Crain’s request shows that as of Sept. 21, Crocker Park and six other retail and mixed-use properties in the Cleveland-Elyria and Akron’s Portage-Summit MSAs have more than 60 days of loan delinquencies or are owned by lenders.
The remaining 11 properties include five hotels, offices and apartment buildings.
As well as spiffy new properties, well-established ones also face problems. Trepp, for instance, lists an $11 million loan on the landmark Shaker Square office-retail complex as nonperforming and says it has matured.
Peter Rubin, whose Coral Co. controls Shaker Square, said the existing loan matured in July and that Coral is working to secure a new loan from its existing lender, whom he declined to identify.
“We were in the midst of securing a loan to refinance the property in April when the new lender got scared and called the loan,” Rubin said. “It’s not that the asset is not performing. It’s the marketplace that is not performing.”
Rubin said he has new restaurants lined up to fill the Yours Truly and Fire vacancies this fall, but he declined to identify them because they will do their own public announcements.
Ezra Stark, chief operating officer of family-owned Stark, said he did not consider the report from Trepp news when the entire industry faces challenges. He declined comment specifically on Crocker Park finances and the Trepp report.
However, Crocker Park, Pinecrest, Shaker Square, and the previously reported bond default in Israel supported by Great Northern Mall in North Olmsted all reflect the seriousness of the recession spawned by the pandemic and the efforts to reduce its toll on the population.
The International Council of Shopping Centers trade group has endorsed federal passage of the proposed Hope Act to provide relief for property owners whose rent collections and tenant rosters were devastated by the pandemic.
While Congress and President Donald Trump provided aid to businesses and individuals earlier, they have not been able to agree on additional aid for them. They are even less likely to be able to focus on a politically charged issue such as fiscal help for landlords.
ICSC has said, “Our industry is at risk if further governmental action is not taken.” However, the real estate industry has worked through woes without such aid in the past, even if it kept the courts busy for years.