Developers Diversified Realty Corporation will use the $400 million proceeds from its CMBS sale to pay down short-term debt and revolving credit facilities, the REIT has confirmed.
The US mall owner became the first company to issue new CMBS under the Federal Reserve’s Term Asset-Backed Securities Loan Facility (TALF), attracting strong investor interest.
In a statement today, DDR said the blended interest rate of its loan, which was secured by 28 assets, was 4.225 percent. Proceeds have been used to ”repay secured debt with near term maturities and reduce balances on the company's revolving credit facilities”.
DDR has repaid more than $270 million of mortgage debt with a average duration of slightly more than one year and interest rates of approximately 6.2 percent. Since the end of September, DDR said it had used cash flow and its revolver to retire $119 million of unsecured notes with an average duration of 1.6 years and yields to maturity of 6.6 percent.
David Oakes, DDR chief investment officer and senior executive vice president of finance, said the CMBS sale “reaffirms our continued strategy to access long-term capital to retire short-term debt”.
Underwriter Goldman Sachs lowered yield premiums from earlier guidance levels of 1.6 to 1.75 percentage points, due to the strong buyer interest, various media reports said at the time of the sale last week.
Analysts saw the sale as a first step in restarting the CMBS market. Sources have told PERE a further 20 to 30 new issuances are in the pipeline.
However, Sam Chandan, president and chief economist of Real Estate Econometrics and an adjunct professor of real estate at the Wharton School of the University of Pennsylvania, said more targeted attention at the securitisation market was required to help solve the “vexing” challenges facing commercial real estate.
“That will be the important test, how we structure securitisation where risk and incentives are aligned,” he told PERE on the fringes of the PERE Forum: New York last week. Originators having “skin in the game” was crucial to getting the system moving again, he added.
One deal, involving a single borrower and lender failed to “speak to the nature of the structural challenges facing commercial real estate”.