South Bend's Erskine Village shopping center owner defaults on loan
It helped bring Erskine Village to life and now the Ohio company that owns and operates the South Bend shopping plaza is defaulting on its loan. But it's not clear why.
Newmark Grubb Cressy and Everett Vice President of retail, Tim Mehall is in charge of marketing the available space at Erskine Village. He told WSBT 22 he's talked with executive at Schottenstein Property Group about the loan defaults.
"I believe this is going to wind up being a minor restructuring of their debts," Mehall said Wednesday. "It's just an internal issue with the owners and developers."
It's been 11 years since the dilapidated Scottsdale Mall was demolished and transformed into a major retail hub on South Bend's south side.
"Schottenstein has been part of this project from day 1," said South Bend Tribune Market Basket reporter and retail expert Heidi Prescott.
But according to Trepp Research, a commercial loan tracking company based in New York, Schottenstein missed its February and March loan payments on the Erskine Village property that currently houses retail giants Target, Old Navy and Kohl's.
Erskine Village's most recent occupancy rate is 92 percent, up from 86 percent in December 2013, said Trepp Research Analyst Sean Barrie.
"You would think just looking at that number there's no problem but these are financials we're looking at, particular to Schottenstein," Prescott said. "Anything above 90 percent is pretty darn good."
Still, Barrie speculates the recent occupancy issues might have caused what's known as a financial lag.
"Looking at the financials as of the end of 2014, they did only have a 0.93 DSCR, and DSCR stands for Debt Coverage Service Ratio," he explained. "So basically for every dollar that they owe on the loan they're making 93 cents on the dollar, and that's a measure of the net cash flows that the property is bringing in. It's one of the tell tale signs of a financial lag, so to say."
But Barrie and other local retail experts say this is not necessarily bad news for people who rely on the shopping center.
"I don't think you can point to this loan default and say it's the end of retail or it's a bad sign for the south side of South Bend," Prescott said. "I think it's a very individual situation."
"In my opinion this is not a situation like we had in 2008 and 2009 where developers and owners were giving back properties on a wholesale basis because they couldn't make them work," Mehall said. "I think this is more of an isolated incident and has nothing to do with that specific market."
There is leasing activity that could increase occupancy in Erskine Village in the weeks and months ahead, Mehall confirmed to WSBT 22.
In a statement, City of South Bend spokeswoman Kara Kelly said,"Erskine Village has worked out exactly as planned. The city took out bonds for infrastructure work and the bonds are currently being repaid through area tax revenue."
The development has been successful enough that the city expects the bonds to be repaid in early 2017 instead of 2027 as originally planned, Kelly said.
WSBT 22 reached out to Schottenstein Wednesday afternoon and a woman who answered the phone at the company said, "No one would be interested in talking about the issue," before hanging up.
Schottenstein also owns Crossings Mall along Grape Road - the plaza where Christmastree Shops is located - and dozens of other properties throughout the United States.
According to databases accessible to Trepp, none of the companies' other properties have filed for default. Two, however, are on a financial "watch list." Erskine Village, Barrie said, has been on a similar watch list since 2009 because of occupancy issues.
A loan service company is currently working with Schottenstein to try and get payments back on track, Barrie said.