Investors take a hit from Brandywine Town Center mortgage investment

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Rendering of the interior of the Brandywine Town Center. (From the office of County Council member Bob Weiner).

Investors in mortgage securities for the Brandywine Town Center off Concord Pike took a big hit late last year

Real estate service Trepp reported that the mixed-use project posted the fifth largest loss among CMBS’s commercial mortgage-backedmortgage securities. (See story below.)

http://info.trepp.com/trepptalk/5-largest-cmbs-loan-losses-december-2016

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The property ranked fifth in December, among loans with a $26.3 million note showing a $15.8 million loss.

As the Trepp post noted, the center saw the loss of its anchor office tenant in 2015 and moved the property toward a 40 percent occupancy figure.

Sean Barrie, who wrote the Trepp piece explained the loan loss as follows;

“A loss incurred by a CMBS loan results from the mortgage selling off at a discount from its original amount. Depending on the severity, the CMBS bondholders due to receive reimbursement (the remaining tranches with the highest ratings) will receive whatever funds are generated from the sale. The bondholders with a stake in the remaining lowest-rated tranches (or those at the bottom of the credit stack) are the ones who will take the loss,”

The Town Center at the site of a horse track was proposed by track owners, the Rollins family, as a destination mall that would attract high-end retailers like Nordstrom or Nieman Marcus to sales-tax-free Delaware.

The center, with its conventional enclosed mall, met with fierce opposition from neighbors in the Brandywine Hundred but was pushed through County Council in the 1990s on the promise of construction jobs at a time when the state was beginning to see an outflow of employment at DuPont Co

By the time, the project was completed, retailers were not willing to roll the dice on the mall as department stores began to struggle with changing shopping patterns.

Anchors stayed in place at nearby Concord Mall and the upscale retailers instead gravitated toward super regional malls like King of Prussia and Christiana Mall. Christiana ended up with a Nordstrom’s.

By 2000, the market was also beginning to change toward mixed-use projects that blended apartments and condos with shopping.

Developers responded by making the mall into a mixed-use project that converted the interior space into offices, with retailers like Lowe’s, Regal Cinema and Target occupying areas around the enclosed space.

The mixture of tenants seemed to hold as the Rollins sold the property to real estate investor Acadia which filled in empty spaces outside the interior of the mall.

That changed, with the departure of the student lender.

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