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Brookfield to hand back keys to three malls, potentially more, as it goes private in $6.5 billion deal


Brookfield Property Partners agreed to throw in the towel on three struggling malls owned by the real-estate giant, with the possibility of more to come, as it goes private in an $6.5 billion deal, according to a new report.

The real-estate owner recently agreed to a “friendly foreclosure,” or when a borrower willingly hands back a property to creditors, on the Florence Mall in Kentucky, the Bayshore Call in Eureka, Calif. and the Pierre Bossier Mall in Bossier City, La., with a combined $174.6 million of senior mortgage debt, according KCP Research.

The KCP team also pointed to negotiations between Brookfield Property
BPY,
-0.17%

and lenders on seven other embattled malls, saddled with $797.8 million of combined senior debt, about potentially friendly foreclosures.

If that happens, Brookfield would be walking away from almost $1 billion of mall debt borrowed over the years in the commercial mortgage-backed securities (CMBS) market, a popular form of finance where Wall Street banks bundle loans on commercial properties into bonds, which are then sold to investors, often money managers, pension funds and the like.

Brookfield declined to comment for this article.

Even before the pandemic, some big-name investors were betting against debt on downtrodden malls, with the view to profit as cash flows at properties fell, borrowers defaulted and prices on mall-related securities plunged.

“Unfavorable trends impacting the mall sector as of Q1 2020 were accelerated by the onset of the COVID-19 pandemic, which led to property closures and tenants seeking rent relief and lease amendments,” the KCP analysts wrote.

Their chart details seven additional malls where Brookfield is under negotiations to hand back the keys.

Brookfield in talks to walk


KBRA Credit Profile, Trepp

“Ongoing economic uncertainties related to the pandemic, waning property cash flows, and a challenging refinancing environment for lower-quality malls has led BPY, among other CMBS loan sponsors including Simon Property Group
SPG,
-1.29%
,
to relinquish title to underperforming assets with a perceived lack of upside.”

Related: Simon Property gives up on four struggling malls. Why more could follow

Brookfield Asset Management Inc.
BAM,
-0.98%

in early April struck a $6.5 billion deal to buy shares of Brookfield Property Partners it doesn’t already own, for $18.17 a unit, an 10% increase from its January offer of $16.50 per unit, or $5.9 billion.

Commercial real estate properties have struggled to find a footing during the pandemic, particularly hotels and retail but also office building, even as benchmark borrowing rates
TMUBMUSD10Y,
1.625%

have remained historically low and stocks
SPX,
-0.72%

have soared to new records.

Read next: Mortgage mess on commercial properties could last 5-7 years, says this real-estate veteran

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