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Federal Realty Defaults On $61M Loan Backed By Miami's Shops At Sunset Place

Federal Realty Investment Trust is in default on a $61M mortgage backed by an outdoor mall in South Miami.

The publicly traded real estate investment trust owns The Shops at Sunset Place in a joint venture, which last year announced a major redevelopment plan for the property, which has struggled with vacancies for years. This year, the coronavirus pandemic forced many of its remaining retailers to shut. 

The Shops at Sunset Place in 2016

The Shops at Sunset Place is a 515K SF mall located on U.S. 1, a major thoroughfare, and Red Road. It opened in 1999 with stores that included FAO Schwarz and Virgin Megastore, both of which have since closed. Simon Property Group sold the property in 2015 to Federal Realty, along with local partners Grass River Property and the Comras Co., for $110M. Federal, which trades on the New York Stock Exchange under the ticker FRT, owns 90% of the partnership. 

In April 2019, local officials approved the owners' plans to tear down half of the shopping complex, about 80K SF of vacant retail, to be replaced with three 17-story towers that would include apartments and hotel rooms, the Miami Herald reported. An AMC movie theater and an LA Fitness gym would be updated.

In its 2019 annual report filed with the Securities and Exchange Commission last December, FRT said the mall was 62% leased and the average base rent was $17.26 per SF. Even though the property had seen some bright spots — a 6,500 SF Yumbrella food hall opened in the complex in March 2019 — most retailers, including the movie theater, a Game Time and a Splitsville bowling facility, closed when the COVID-19 pandemic hit. 

“The joint venture is in active conversations with its lender at this time," a spokesperson for the owners told Bisnow via email. "The partnership firmly believes in the potential of the Shops at Sunset Place as a viable redevelopment opportunity given its central location within South Miami’s vibrant community.”

The mortgage matured Sept. 1. The default was disclosed on a prospectus supplement filed with the SEC Oct. 8 in conjunction with an offering of $400M in green bonds. The filing says that FRT will evaluate its long-term plans for the Shops at Sunset Place, "mindful of the impact of COVID-19 on the revenue prospects for the property, in light of its anchor system comprised primarily of entertainment and experiential tenants."   

North Bethesda, Maryland-based FRT last reported the Shops at Sunset Place's carrying value at $113M in June, but it said in the Oct. 8 filing it is considering writing down the value of the property in the form of an impairment. The $61M loan is nonrecourse, meaning the default won't affect FRT's other properties.

Just a day before filing the supplement, FRT released a business update for investors, with a presentation asserting that the company has paid 53 years of increased annual dividends, the longest record in the REIT industry. The company controls 104 open-air properties in suburbs of eight major metropolitan markets.

Its business update stated that all 104 properties remained open and operating throughout the COVID-19 pandemic, that 94% of retail tenants are open, and that the company entered into deferral agreements for $30M of rents. Its newly renovated CocoWalk in Miami's Coconut Grove was at 85% occupancy as of last month, the Miami Herald reported.

FRT CEO Don Wood told Bisnow in an interview last month that the company has put all future development on pause, but it will continue building its active $600M construction pipeline.

He also said the company is collecting about 80% of its expected retail rent, an increase since the spring and summer, and it is focused on helping previously healthy retailers survive. Wood said at a virtual real estate conference in September that the country is over-retailed, something he has publicly believed since well before the pandemic.

"Certainly we will lose retailers," Wood told Bisnow last month. "The key is not about losing retailers that were weak coming into this. The key is replacing them with the strong companies that will come out of this, and there are many."