Fitch: Providence Place mall defaults on mortgage loan

Updated at 5:07 p.m.

THE COMPANY THAT owns the Providence Place mall has defaulted on its mortgage, according to Fitch Ratings./ PBN FILE PHOTO/MICHAEL SALERNO

PROVIDENCE – The company that owns the Providence Place mall has defaulted on its mortgage and is at risk for downgrades in its bond ratings, according to Fitch Ratings.

The ratings agency in a May 11 report affirmed the “AAA” ratings for the pass-through certificates on the mall, which are secured through a Payment in Lieu of Taxes deal with Providence. However, the report also noted that Providence Place Group LP has defaulted on a separate mortgage loan.

The final payment on the 10-year fixed-rate loan was due on May 6, but the loan was transferred to a special servicer ahead of the payment in anticipation of default, according to Melissa Che, senior director for Fitch’s U.S. commercial mortgage-backed securities group.

The loan is backed by 980,000-square-feet of mall space (out of the total 1.3 million square feet) with some of the anchor space excluded from the collateral, Che wrote in an email to Providence Business News.

- Advertisement -

Special servicers take charge of commercial mortgage-backed securities when borrowers can’t pay, typically working out a loan modification or debt repayment, or, potentially, foreclosure. What type of deal is being discussed for the mall is unclear.

Lindsay Kahn, a spokeswoman for Providence Place Group parent Brookfield Properties, said in an email the company is in “ongoing discussions” with its lender for an extension, and that there will not be an impact to shopping operations.

Fitch’s report cites declining operational performance at the mall due to the pandemic and government-mandated closures. In an interview with PBN earlier this year, former mall general manager Mark Dunbar said the mall had seen a drop in sales and traffic amid forced closures and continued restrictions on hours and capacity, but declined to share specific numbers. 

A number of stores, including Clark’s and Abercrombie & Fitch, have closed since the onset of the pandemic, PBN has reported. As of February, about 7 of 160 storefronts were empty.

Across the country, commercial mortgage-backed security loan defaults spiked in 2020, reaching a peak of 10.48% in September – the highest rate since the 2008 recession, according to data company Trepp. However, special rates have improved in 2021, declining by 40 basis point to 9.02% as of April, according to Trepp.

Fitch in its ratings offered a stable outlook for the mall, but placed six bonds associated with the mortgage on “rating watch negative” meaning they could be downgraded in the future.

The mall, which opened in 1999, was financed through a series of deals including a state bond and a tax treaty with the city of Providence. The state deal used mall sales tax revenue to repay the debt on the bond that paid for construction. The state made its final, $73 million payment on the bond in 2019, WPRI reported.

The city also struck a deal with the mall, with a 30-year tax stabilization agreement that gets the mall off the hook for paying most of its city property taxes through 2028, though city officials have expressed interest in ending the agreement sooner. The payment in lieu of taxes lien from that deal is still on the books and has not been placed with a special servicer, Che wrote.

The property was valued at $683.3 million in 2020, according to city assessment records.

(ADDS sixth paragraph with comment from Brookfield Properties, parent of mall owner.)

Nancy Lavin is a PBN staff writer. You may reach her at Lavin@PBN.com.

No posts to display