Watch List Calls Stonestown Galleria Loans Risky

Two months after the owner of the largest mall in San Francisco went into receivership, the second-largest mall in the city might be heading in the same direction.

CMBS loans worth $180M backed by Brookfield Properties’ Stonestown Galleria and coming due in October—which have been on servicer watchlists since May 2020—have been labeled a “maturity risk.”

Two loans for the mall—one worth $150M and the other for $30M—are hitting maturity on Oct. 1. Both were originated by Morgan Stanley in 2013 at an interest rate of 4.39%.

According to Morningstar, net cash flow in 2022 for the Stonestown Galleria was 16.2% lower than the underwritten level. The occupancy level at the mall, which is located next to San Francisco State University, is 66%.

According to the watchlist commentary, Brookfield Properties has said they plan to refinance the property but “will not begin the process until early Q3 2023.”

It remains to be seen whether the financial status of the two-story, 850K SF mall, located at 3251 20^th Avenue, represents a long-term setback for Brookfield Properties’ ambitious $2B plan to redevelop the 40-acre Stonestown site by building a mixed-use community in the parking lots surrounding the mall.

In 2021, the NYC-based company filed plans to build up to 3,000 homes, six acres of parks and plazas, and 200K SF of office space at the site. The plan, which was aiming for entitlement by the end of this year, also envisioned an additional 200K SF of retail.

In June, Unibail-Rodamco-Westfield (URW) disclosed it has stopped making payments on $558M in debt for the Westfield San Francisco Centre, the largest shopping mall in the city.

The company said the 1.2M SF mall at 865 Market Street near Union Square was transferring to receivership. The Westfield Centre, currently 55% occupied, is jointly owned by URW and Brookfield Properties, which acquired a stake through its acquisition of Forest City.

Deutsche Bank originated the loan for the mall in 2016. Midland Loan Services has been designated as the special servicer.

The move by URW came a month after an anchor tenant, Nordstrom, announced it was shutting its 300K SF store at the Westfield mall, and a week after the two largest hotels in Union Square also stopped making debt payments.

“Given the challenging operating conditions in downtown San Francisco, which have led to declines in sales, occupancy and foot traffic, we have made the difficult decision to begin the process to transfer management of the shopping center to our lender to allow them to appoint a receiver to operate the property going forward,” said Molly Morse, a spokesperson for URW, in a statement.

According to Morse, sales at the Westfield San Francisco Centre dropped to $298M last year from a pre-pandemic level of $455M in 2019, while foot traffic has declined by 43% in the same period.