Starwood Property Trust Inc. says a debt sale at a discount is a possible option for money tied up in a $230 million loan on the beleaguered American Dream mall and entertainment complex in New Jersey’s Meadowlands.
Starwood Property, a real estate investment trust headed by Barry Sternlicht, has the American Dream loan on non-accrual status, which means they have not recognized current income on it, and said its book basis on the debt has been reduced to about 70 cents on the dollar.
“I’m pretty sure we can sell it for that,” Sternlicht, chairman and chief executive officer of the mortgage lending trust, said on a call with investors last week. “And then we can deploy a quarter of $1 billion into stuff.”
Starwood hasn’t tried to market the debt yet and is keeping its options open, according to a person with knowledge of the matter, who asked not to be identified.
The Starwood loan was part of $1.7 billion in construction financing for the complex, which has struggled to repay debt following pandemic shutdowns and slow leasing. Lenders led by JPMorgan Chase & Co. last year extended the due date on a construction loan until October 2026.
The complex also has about $1.1 billion of municipal debt, including $300 million backed by New Jersey economic development grants, which have missed three consecutive semi-annual payments.
Commercial real estate lenders are aggressively examining their portfolios as rising interest rates have driven down property values and opened the door for better returns on newer loans. Nearly $1.4 trillion of debt on commercial property is maturing in 2023 and 2024, much of which will need to be refinanced or traded, according to the Mortgage Bankers Association. Commercial-property prices have fallen 12% in the 12 months through July, real estate analytics firm Green Street reported.
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A Starwood spokesman declined to comment. A spokesperson for American Dream had no immediate response to a request for comment.
Starwood Property Trust, which manages about $28 billion in debt and equity investments, reported distributable earnings of 49 cents a share for the second quarter.
“Having this loan on non-accrual means we have had $230 million of equity earning nothing, thus reducing our distributable earnings by 11 cents per share per year,” Jeff DiModica, president of Starwood Property, said during last week’s call with investors. “Once resolved, this asset and the others on non-accrual will create positive earnings power in the future as we redeploy that equity into income-producing assets, while significantly reducing the likelihood and scale of a future impairment.”
Author: John Gittelsohn and Martin Z. Braun