Black Diamond Capital Management, a distressed-debt fund, initiated a series of actions that led to substantial losses for bondholders of the Palisades Center mall in West Nyack, New York. The firm purchased over 70% of the top-ranking slice in a commercial mortgage-backed security (CMBS) tied to the mall. Subsequently, Black Diamond used its position to acquire the sole mortgage backing the CMBS at a discounted rate, which triggered the liquidation of the bond.
This maneuver resulted in significant losses for investors. Class B, C, and D bondholders were entirely wiped out, while Class A bondholders, which included some once-AAA rated bonds, experienced a loss of about 32% of their value, amounting to $72 million. The total loss on the original investment was $231.4 million. The mall, once valued at $881 million in 2016 when the $418.5 million refinancing loan was issued, was most recently appraised at $191 million, a 78% reduction in value.
The decline of the Palisades Center mall played a crucial role in these financial outcomes. Its revenue dropped from over $80.4 million in 2016 to $61.8 million in 2022, and further to $55.2 million in 2024. Occupancy also fell from 100% to 78% in 2022. These financial struggles led to the loan being transferred to special servicing, and eventually, Black Diamond Capital Management won the property through a $175 million credit bid after a foreclosure auction. This situation highlights the vulnerability even of highly-rated bonds in a distressed market.
