Pyramid Management Group is repurchasing the mortgage for Destiny USA, a large mall in Syracuse, New York, at a drastically reduced price. This transaction is causing substantial losses for holders of commercial mortgage-backed securities (CMBS) tied to the property, some of which were initially rated AAA.
This debt restructuring highlights a broader trend of deteriorating property values impacting highly-rated tranches of CMBS. The losses associated with Destiny USA are among the largest observed in single-property CMBS.
Separately, the mall's owner, Pyramid Management Group, failed to make a $38.9 million payment required to extend overdue mortgage loans totaling over $430 million, according to Kroll Bond Rating Agency. Kroll estimates the mall's current liquidation value at only $65.3 million, a significant drop from its 2014 valuation of $710 million. As a result, a special servicer has terminated a forbearance agreement and is planning enforcement action, potentially leading to foreclosure.
Destiny USA also has $259 million in municipal bonds issued by the Syracuse Industrial Development Agency for a 2012 expansion. Fitch Ratings recently upgraded these municipal bonds from C to CC, indicating that while a default is probable, it is not imminent. These municipal bonds hold a senior position to the private mortgage loans, meaning bondholders would be paid first in a sale, leaving little to no recovery for mortgage lenders due to the mall's low valuation. Despite these financial woes, the mall remains operational with around 300 tenants.
