3650 REIT structures $53m retail financing as lenders eye ‘right’ retail

The firm will retain servicing rights on the financing, which is part of a $108m financing package.

3650 REIT has originated $53 million in financing on a 900,000-square-foot mall in Reno, Nevada, a transaction that demonstrates lender re-engagement in what is being called the right kind of retail.

The financing is part of a larger $108 million debt package on Meadowood Mall, a high-quality property that is the only enclosed mall in Reno, Jonathan Roth, managing partner and co-founder, told Real Estate Capital USA. That differentiation, combined with strong sponsorship that includes Simon Property Trust and AEW Capital Management, helped the firm to get comfortable with the risks associated with the retail sector.

“We are seeing a lot more activity in retail and you’ll see us doing more in the sector for sure. This doesn’t mean that all retail is good, or all retail is bad. It is just that you need to have a new skill set that takes this into account and the ability to make judgment calls about where things are headed as opposed to where they have been,” Roth said.

Additionally, there are only two other comparable properties in the immediate area and Roth noted neither represents competition because they target different segments of the consumer market. Meadowood Mall has historically demonstrated high occupancy and net operating income levels, Roth added.

“On the corporate side, retailers are showing or posting very compelling numbers on a year-over-year basis and the companies that survived are oftentimes doing quite well,” Roth noted, citing strong overall sales growth.

Retail sales in the US grew by 1.7 percent in October and 0.8 percent in September, according to the most recent data from the Census Bureau. On a year-over-year basis, retail sales are up 16.3 percent.

Loan structure

3650 REIT’s financing is split between a $28 million b-note and a $25 million pari passu A-note, with an undisclosed senior lender funding the remainder of the loan on 500 Meadowood Mall Circle. The financing has an initial term of five years, with Roth declining to disclose pricing.

The firm, with a portfolio of more than $5 billion of stable and bridge loans in its portfolio, retained the controlling class and special servicing rights. This was important for 3650 REIT because of the changes happening across the retail sector.

“As a firm, we don’t sell loans, we service them. When issues arise – and not necessarily bad issues – we have the capacity to respond to inquiries and questions,” Roth said. “If you own and operate retail centers, you’re actively configuring, repurposing or re-thinking the space.”