Morgan Stanley launches $925m refinancing package for Century City mall

The firm is launching the deal at a time when segments of the retail sector are showing signs of resilience.

Morgan Stanley this week launched a $925 million refinancing package for Unibail-Rodamco-Westfield’s Century City mall in Los Angeles.

The two-year, floating-rate CENT TRUST 2023-CITY is set to close on August 29, according to separate reports from KBRA and Fitch Ratings.

The property is one of the top malls on the West Coast, according to a pre-sale report from Fitch. Additionally, the refinance is one of the largest commercial mortgage-backed securities deals to be completed in 2023. It is also the largest in Los Angeles this year, surpassing the Morgan Stanley and Goldman Sachs co-originated $450 million CMBS loan for Rick Caruso’s Americana at Brand mall in Glendale from July.

The transaction also signals a shift for the Paris-based developer and owner. Unibail-Rodamco last year announced plans to sell its US mall portfolio, but the refinancing reflects a changing sentiment among lenders and investors in this part of the retail sector, one market analyst told Real Estate Capital USA.

Several of the firm’s malls have matched or exceeded their pre-pandemic revenue levels in recent quarters, and the firm has actively revamped its assets with restaurants, housing and additional retail tenants to increase footfall and income.

The analyst said they expect the firm to focus on adding more value by selling off distressed assets and redeveloping properties that still have remaining potential for revenue growth.

Unibail-Rodamco has not shied away from offloading its US retail assets or halting debt repayments on their loans, as exemplified in June when the firm and Brookfield Properties stopped paying back a $588 million loan for the Westfield San Francisco Centre mall. According to a report from the San Francisco Chronicle, the firms plan to give the nine-story mall back to its CMBS lenders.

Morgan Stanley’s refinancing of Westfield Century City will fund an estimated $909.5 million return in equity to URW and pay estimated closing costs of $18.5 million. Unibail-Rodamco acquired the mall in 2002 for $165 million and has upgraded the property over the years, most recently with a $1 billion redevelopment of the asset in the mid-2010s, Fitch noted.

According to KBRA’s report, the refinancing has an interest rate of the secured overnight financing rate plus 2.92 percent, a tighter spread relative to recent CMBS deals. KBRA noted URW has to buy a rate cap of 6 percent as part of the interest-only financing.

The loan includes three one-year extension options which sets debt maturity for as late as 2028. Fitch clocked the debt service coverage ratio at 1.28x and noted its loan to value is 68.5 percent.