SYRACUSE, N.Y. – As the retail industry’s brick and mortar stores continue to struggle against the growing online shopping trend, commercial real estate is now facing new financial challenges.
In the wake of a recent report that DestiNY USA, a large retail complex in Upstate New York, may default on its mortgage come June, Milena Petrova, associate professor of finance at Syracuse University’s Whitman School of Management, explained what’s going on.
“This is the state of all retail in the United States; it’s not a DestiNY issue,” said Milena Petrova. “When the retail industry struggles it affects the real estate and capital markets, too.”
She said that one of the Pyramid Co.’s loans is coming to maturity in June. Typically, when a commercial loan matures, because it still has a large balance outstanding, there are two options – sell the underlying property or refinance the loan. Pyramid is not likely to sell so the refinance option is the one they’re pursuing. However, right now, capital markets are reacting adversely to what’s happening to the retail market, which makes it difficult to refinance. Thus, Pyramid is seeking to extend its current loan so they have time to wait and see if market conditions improve. It also gives them time to fill vacancies left from store closings and improve their overall profile to be more enticing to a lender, and achieve better loan terms.
According to Petrova, these kinds of financial strategies are increasingly happening across the country, as the commercial real estate industry responds to the ailing retail industry.
“DestiNY is performing very well, considering what’s happening in the country,” said Petrova. “This is due to Pyramid’s strategy to fill the space with other kinds of business, such as entertainment and restaurants, and even an athletic club.”
Overall Petrova is bullish on DestiNY and predicts it will not default. “When it becomes easy to find a parking space and crowds begin to thin out, that’s when we should be worried and I don’t see that happening anytime soon,” she said.
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