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Purchase of Mall’s Underlying Debt May Clear Way for Sale/Redevelopment of Iconic Palisades Center
ANALYSIS
The future of the Palisades Center in West Nyack remains uncertain, even after Black Diamond Capital Management, an “alternative asset management firm” purchased the mall’s underlying debt at a substantial discount earlier this month.
An “alternative asset management firm” is one that specializes in high yield credit, stressed and distressed credit, restructurings and business turnarounds.
Clarkstown officials have rebuffed developers’ efforts when they’ve floated the idea in the past, but the town may have to choose between reinvention of financially strapped malls or risk converting them to “ghost” malls with declining valuations.
The original refinancing in 2016 was a $418.5 million CMBS (Commercial Mortgage-Backed Security) loan when the mall was valued at $881 million. But the mall’s fortunes turned south when anchors JCPenney and Lord & Taylor shuttered their stores in 2017 and 2019 respectively. COVID-19 and e-commerce further hurt revenue when occupancy fell from 100 percent to 78 percent, leaving inadequate income to service the underlying debt.
The loan against the property, known as an SASB (Single-Asset, Single Borrower) loan, entered “special servicing” in 2022. Bonds backed by a single-asset (a shopping mall) with payments from a single-borrower (Pyramid) are inherently more risky than other AAA bonds. A foreclosure action was filed in February 2023, and in September 2024, a court appointed a temporary receiver to oversee the property’s operations and finances.
The receiver has the authority to lease retail stores, collect rents, pay bills, conduct routine maintenance and repairs valued less than less $5,000. Repairs or improvements above that amount require the mall owner’s consent or court approval. The mall and surrounding parking lots and access roads are degraded from lack of maintenance and investment.
According to Morningstar, the most recent appraisal of the mall was $191 million, a 78 percent decline from 2016.
Losers in the acquisition of the underlying debt were Class B, C and D bondholders whose investments were completely wiped out. Even Class A bondholders lost about 32 percent of the value of their holdings, with a loss of about $72 million, also according to Morningstar.
Black Diamond is now the plaintiff in the foreclosure suit as the property moves to a sale. The property will likely sell at a price point reflecting an ongoing drop in its market value. A potential buyer may see opportunity in reimagining the property, remapping its anchor tenants, or converting part of the property to another use.
There have been discussions of rezoning regional shopping mall properties in the Town of Clarkstown (and elsewhere) to include multi-family housing units. Both The Shops at Nanuet and The Palisades Center would need zoning changes to build housing. The buyer of the Shops at Nanuet, renamed Nanuet Town Center, has drawn plans for multi-family housing where the Sears Auto Center building is situated. Clarkstown officials have rebuffed developers’ efforts when they’ve floated the idea in the past, but the town may have to choose between reinvention of financially strapped malls or risk converting them to “ghost” malls with declining valuations.
The Palisades Center mall is approximately 2.2 million on four floors. It sits on 172 acres of land. The mall itself was built in 1998 on a 130-acre site which previously housed two landfills.
Winners & Losers
While it’s hard to find a winner from the demise of the Palisades Center, other than Black Diamond, losers abound.
Class A bondholders took a 70 percent haircut on their investments. Other classes were wiped out.
The Town of Clarkstown and the Clarkstown School District have both lost significant current and forward property tax revenue from the depressed assessed value of the property, which is assessed at $300 million, according to an agreement between the town and the owners.
Residents and property owners in Clarkstown are saddled with long-term debt from bonds issued after the Town of Clarkstown agreed to refund the owners of the Palisades Center $27.5 million in property taxes to settle several years of tax certiorari cases brought by the mall’s owner based on claims of over-assessments and valuations. The bulk of that refund fell on taxpayers in the Clarkstown Central School District.
The biggest loser is the Pyramid Management Group. Aside from losing the Palisades Center, the company has also lost the Aviation Mall in Queensbury, NY and the Hampshire Mall in Hadley, Massachusetts to excessive debt and the inability to refinance.
Pyramid also faces challenges refinancing and holding onto its Walden Galleria property in Buffalo. Walden Galleria is the largest shopping mall in Western New York, with more than 200 retailers, 10 sit-down restaurants, an international food court and Regal Cinemas Stadium 16 with RPX theaters.
Pyramid is also struggling with debt at Destiny-USA in Syracuse. Destiny USA is a 2.4 million square foot shopping, dining, and entertainment complex located in Syracuse, New York. It is New York’s largest shopping mall and the 10th largest in the United States.
