The company handling a troubled loan on the Bangor Mall said it expects to foreclose on the mall on March 7.
At the same time, the mall’s current owner, Simon Property Group of Indianapolis, is asking the city for a steep property tax break, citing sales declines, mall vacancies and increased occupancy costs.
The Bangor Mall first ran into trouble last October, when Simon defaulted on an $80 million loan taken out against the mall. The loan was sent to LNR, a Miami company that specializes in troubled loans.
In January, LNR said Simon “is not interested in modifying the loan,” such as by asking the lender to extend the life of the loan or decrease payments. LNR revealed Simon’s decision in a monthly commentary released by Trepp, a New York-based commercial real estate data firm.
On Thursday, LNR’s monthly update released by Trepp said, “Lender is performing pre-foreclosure diligence with a foreclosure slated for March 7, 2018.” LNR is acting on behalf of the trustees of the loan. The foreclosure is not yet listed with the Penobscot County Registry of Deeds.
LNR already has formed a Maine-based company to handle the mall’s property for it and the loan trustees, according to documents filed Jan. 19 with the Penobscot County Registry of Deeds. The company is called MSCI 2007-IQ16 Stillwater Avenue LLC.
Once the foreclosure is completed and the trustees take over the mall’s ownership, LNR will work to prepare the mall for sale, according to one expert.
“LNR will continue to manage the asset [Bangor Mall] and try to salvage some value,” said Steve Jellinek, vice president at Morningstar Credit Ratings, which rates loans like Simon’s.
Jellinek said Simon is responsible for property taxes until the foreclosure. Simon has asked the city to drastically lower the appraised value of the mall, which would halve the $1.4 million in property taxes that it pays for this tax year.
In a letter dated Jan. 8, Simon asked the Bangor assessor’s office for a tax abatement for the fiscal year from July 11, 2017, through June 30, 2018, citing economic factors that affected the mall.
“The Bangor Mall has suffered greatly over the past few years from a number of economic hardships ranging from sales declines and increased occupancy costs to a rash of vacancies, including a key anchor department store, Macy’s, and, as recently announced, Sears, which will shutter their store in early 2018,” Simon’s tax manager, Aaron Carter, wrote in the abatement request.
Carter said those factors have dropped the mall’s appraised value. The company servicing the defaulted loan, LNR, had the mall appraised at $28.9 million last fall. That’s 77 percent less than the $128 million valuation in 2007, when Simon took out the $80 million loan, using the mall as collateral.
Carter asked the city to value the mall at close to $32 million. That’s nearly half of the city’s appraised value, which was $60.9 million as of April 1, 2017, according to city assessor Philip Drew.
That was around the time Macy’s closed but before Simon defaulted on the loan and Sears announced it would close its anchor store. A series of smaller stores, including Build-A-Bear, JB Robinson Jewelers and the Starbucks kiosk, have closed since November.
Simon has paid property taxes on the 10 parcels it owns in the mall as of Sept. 15, 2017, according to Janelle Emerson, deputy tax collector for Bangor. The next taxes are due March 15. The 11th parcel, the former Macy’s anchor store, was recently purchased by a subsidiary of Miami developer Lionheart Capital.
Drew said Simon has 30 calendar days to provide additional documents to support its tax abatement request. The assessor’s office has 30 additional calendar days to respond to the request.
The Bangor City Council passed a motion Monday for $10,000 to hire law firm Jensen Baird Gardiner & Henry for legal services related to the abatement request and a possible outside appraisal by the city, if needed, Drew said.
The Bangor Mall area makes up almost half of the 6.4 million square feet of retail space in Greater Bangor, according to data compiled by Epstein Commercial Real Estate brokers.
Signs of change in the mall’s ownership emerged when the Bangor Mall’s website was taken down recently and redirected to the Simon Property homepage. The Bangor Mall is not listed on that page as one of Simon’s properties.
Additionally, the mall is listed as “other” in two Securities and Exchange Commission financial filings for the last half of 2017. Other properties listed in that category by Simon are for sale or headed toward foreclosure.
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Correction: An earlier version of this report misspelled Morningstar Credit Ratings Vice President Steve Jellinek's last name.