PCCP and Walton Street Capital have bought back almost $300 million face value of loans from a syndicate of lenders in an effort to salvage their investment in a Colorado mixed-use center.
The two firms, together with Alberta Development Partners, spent the past six months negotiating with roughly seven to eight banks to recapitalise the loans secured against The Streets at SouthGlenn complex.
The Centennial, Colorado centre, originally an enclosed mall, was first acquired by Walton Street in 1998 before the Chicago-based firm brought in El Segundo, California real estate debt shop PCCP and Alberta as joint venture investment partners to redevelop the property. The complex is now an open-air town square-style structure, comprising 580,542-square-feet of retail stores, 137,010-square-feet of offices and 202 apartments.
The trio of investors took out roughly $300 million of loans to develop the asset, including a $212 million construction loan, mezzanine loans and locally-issued bonds. However, as real estate prices fell in the wake of the credit crisis, the consortium came under pressure from the lending group in relation to loan-to-value ratios and maturity dates.
Rather than allowing the deal to fall into foreclosure though, PCCP, Walton and Alberta worked with lenders and creditors to pay off all debts relating to the venture. The debt was acquired at discount, although PCCP partner William Lindsay declined to comment further.
However he said: “This is probably the single largest equity investment in PCCP today.” The deal is now being held on an unlevered basis, for the “long-term”, Lindsay added.
The recapitalisation, PCCP’s equity for which came from a separate account, is part of a growing trend among private equity real estate firms to buy back the debt on existing deals or acquire discounted third-party property debt.
“Since the beginning of the year we have seen banks, where earnings have returned, start to move through their portfolios at a methodical rate,” said Lindsay. “It’s not a rush, but banks are starting to consider deals.”
On the same day as closing the recapitalisation, the trio also signed a 10-year lease with education services firm Pearson for 96,027-square-feet of office space at the complex. According to the Wall Street Journal, The Streets’ retail space is 72 percent leased, while half the 202 apartments are rented and 27 percent of the office space remains vacant.