$82M Killeen Mall Faces Daunting Refinancing Hurdles

Killeen Mall

Morningstar Credit Ratings has placed the $82M loan backed by the Killeen Mall on its watch list because of high leverage and maturity risk. Estimates of collateral value stand at $67.1M, down 35.4% from $102.5M at issuance, resulting in a loan-to-value ratio of 122.2%. Should the loan default,  there is the potential for a $15.3M loss, which includes servicer advances.

The collateral, a 386k SF portion of the 558k SF Killeen Mall, continues to operate normally but was overleveraged at issuance. The loan was underwritten with a 7.25% debt yield and a loan-to-value ratio of 80%, which would be considered rather high leverage for a Class-B mall in a tertiary market today.

Net cash flow at the mall decreased over $500k since issuance. As the mall is near Fort Hood, the US Army’s sequestration program may result in the loss of more than 3,000 soldiers and their families by 2019, further impairing the mall’s net cash flow.

As the property, built 35 years ago, is able to cover its debt service, an immediate move toward foreclosure is unlikely. If the sponsor believes there is no potential upside to holding the mall, it could, as other mall sponsors have done, allow an orderly transition of the property to the lender.

Data obtained from Morningstar.

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