The Starwood business would move away from the mall and relinquish ownership through an uncontested foreclosure or “deed in lieu of foreclosure”, a way to avoid a costly court battle that would likely lead to the same result. According to a report by loan manager Louis Joliet, “negotiations for a DIL [deed-in-lieu] or the stipulated lockdown is in progress, ”Trepp said in an email.
A Starwood spokesperson declined to comment. An executive at the servicer, Miami-based Rialto Capital Advisors, did not return a phone call.
Built in 1978, the Louis Joliet Mall covers 975,000 square feet and included four department stores until a few years ago. Carson’s closed in 2018 and Sears closed its store there in 2019, leaving only two today: a Macy’s and a JC Penney.
Although Starwood’s participation excludes the department store space, malls have historically relied heavily on department stores to attract shoppers to their other tenants. Much of this foot traffic has disappeared as department stores have closed by the hundreds. In a report released earlier this year, Green Street, a California-based research firm, predicted that more than half of department stores in malls in the United States will close by the end of 2021.
The growth of e-commerce has crushed department stores and many other mall retailers, a trend that accelerated during the coronavirus pandemic. Many malls and stores temporarily closed at the start of the pandemic and continue to struggle even though they have reopened.
But some chains have gone out of business for good. Other tenants have stopped paying their rent to save money, leaving landlords strapped for cash to make their monthly mortgage payments. The owners of Gurnee Mills in Gurnee, the third largest shopping center in the region, and Yorktown Center in Lombard have also stopped repaying their loans after the virus spread in Chicago, suggesting that lenders could also take over those loans. properties.
Another large local mall, the North Riverside Park Mall in North Riverside, is already facing a foreclosure lawsuit after failing to pay off a $ 69 million mortgage that matured last October.
Foreclosures typically only transfer ownership of a property from the borrower to the lender, but the current wave of shopping malls defaults could leave some malls closed for good.
“Only the strong will survive,” said Steve Jellinek, vice president of CMBS research for DBRS Morningstar.
Miami Beach, Florida-based Starwood, led by billionaire financier Barry Sternlicht, acquired a 90 percent stake in the Louis Joliet mall in 2012 from Westfield Group, an Australian mall owner. Westfield, now part of a larger commercial real estate company, Paris-based Unibail-Rodamco-Westfield, retained a 10 percent stake in the property and guaranteed about half of the $ 85million mortgage. dollars on the mall, which means it could be held responsible for any deficiencies. if the property ends up worth less than the debt, Jellinek said.
It’s hard to say what the property is worth today. Mall values were already down before the pandemic, but there have been so few sales in the sector this year, leaving investors to guess how much further they have fallen since then.
The Joliet Mall was valued at $ 131.8 million in April 2012, when the Starwood-Westfield joint venture took out the $ 85 million loan, which was pooled with other mortgages and sold in as part of a commercial mortgage backed securities (CMBS) offering. Rialto manages the loan on behalf of the investors who hold the bonds secured by the loans.
The company made its last mortgage payment in March, according to Bloomberg data.