$821M in 2005 Loans on Houston Galleria Mall Prepaid

The Galleria in Houston, Texas.
The Galleria in Houston, Texas.


The Galleria, a 2.3 million-square-foot mall that is Houston, Texas’ most visited attraction, has prepaid $821 million in debt at the start of an open prepayment period, Mortgage Observer has exclusively learned.

The CMBS loan that constituted a hefty portion of the debt—$290 million—was conservatively underwritten, with a 47.5 percent loan-to-value ratio and debt service coverage ratio of nearly 2.73, according to data from Trepp.

Indeed, in January, the CMBS data service had warned that “if this loan can’t refinance, the entire CMBS market will be licking its wounds in 2015,” as the “Wall of Maturities,” approached.

One mall down, many to go.

The borrowing entity is a joint venture comprised of Simon Property Group, Walton Street Capital and an affiliate of CalPERS, the nation’s largest public pension fund. The mall features hotels, retail anchored by four national chains and a private health club.

Since the loan’s securitization in 2005, Walton has exited the asset, a representative for the firm said, selling their retail portion in 2010 and their stake in the hotel portion in 2013, both to Simon.

Its unclear if the current ownership has yet refinanced the mall, though it would seem likely, a source with knowledge of the market told MO. Calls and emails to the representatives for the other borrowing entities were not returned.

The prepaid financing consisted of a $580 million senior loan that was split into three pari passu notes: a $290 million A-1 note included in the securitization, a $197 million A-2a note and a $93 million A-2b note (the latter two were not included in the securitization). The financing also included two other loans: a $111 million B-note (also not included) and, lastly, a $130 million subordinate companion loan included in the securitization as a non-pooled asset, Trepp analyst Sean Barrie said.

The securitized portion of the loans made up 16.75 percent of the JPMCC 2006-CB14 deal and was set to mature in December of this year, per Trepp data. The interest-only mortgage had a rate of 5.4 percent.

The mall, developed by local landlord turned national real estate titan Hines, opened in 1970. Current anchor tenants include Neiman Marcus, Saks Fifth Avenue, Macy’s and Nordstrom. Rents in the submarket average around $23 per square foot, according to loan docs.

According to loan documents, the mall boasts an indoor skating rink as well as 375 other stores, including a Prada—the only retail outlet for the Italian designer in all of Texas.

In February of this year, The Houston Chronicle reported that Simon was spending an estimated $250 million to revamp the luxury wing of the Galleria to retain top-shelf tenants.

While the rest of the market braces for the impact of the “Wall,” the Galleria finds itself in an enviable position. The mall commands the region in terms of ultraluxury retail, which is one segment of the market that’s remained relatively healthy.

“With rates being low across the board, any attempt to refinance [the mall] would be a smart move,” Mr. Barrie told MO.

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