A foreclosure on a portion of the Scottsdale Center retail center at the corner of Walnut and North 46th streets in Rogers is expected in September. On July 17, a Benton County circuit judge assigned Flake & Kelley Commercial to manage the site after the previous owner, a limited liability company (LLC) owned by Tom Hopper, defaulted on a significant loan.
According to data from Trepp LLC, a New York-based analytics firm that provides market research for the real estate and banking industries, a $38 million loan was due to mature in May 2017. The loan was a commercial-mortgage-backed security (CMBS) put together through U.S. Bank in 2007.
Hopper wasn’t able to fully repay the interest-only loan — there is still $34.98 million outstanding — or secure refinancing.
Sean Barrie, a Trepp research analyst, said if the loan were to sell off at a loss, the CMBS bondholders — the institutional investors who bought into the bonds to back the CMBS loan — would be the ones who lose money.
The non-recourse loan was sent to special servicing and the servicer proceeded with a foreclosure as a resolution for the loan. Barrie said the special servicer has given the loan an appraisal reduction amount (ARA) of $10.86 million. That means the servicer feels the $34.98 million outstanding would be resolved with a $10.86 million loss if it were to be sold right now.
“It’s not a good situation,” Hopper said. “And not one that I ever anticipated. But if you have been following retail, you can understand there are a whole bunch of folks who are in the same boat that I am. It’s the recession, competition and e-commerce. You can go down through the list of issues that retail has dealt with nationwide. To a smaller degree, that is what we have dealt with.”
The foreclosure involves five buildings totaling approximately 318,500 square feet still owned by Hopper. Some of the notable tenants include Barnes & Noble, Verizon, Petco, Staples, Ross Stores, Rack Room Shoes and Men’s Wearhouse.
The foreclosure does not affect the Scottsdale Center restaurant outparcels, Kohl’s or Malco Rogers Towne Cinema Grill, which own their properties. Hopper said the foreclosure is also not related to the Scottsdale Center development south of Walnut Street, which is fully leased.
Hopper said he has about 50,000 square feet of vacant space in the foreclosed buildings, which equals an occupancy of about 85%. The retail hub opened in 2001 and has seen a variety of tenants come and go. Hopper said it remains a first-class shopping center, but for national tenants. He said the Pinnacle Promenade, which opened in 2006, has attracted many former Scottsdale Center tenants during the past decade.
“[Scottsdale Center] was built and designed to take care of national tenants,” Hopper said. “It wasn’t built as a mom-and-pop center. The covenants were written with that in mind. I have been approached about putting some of those [smaller companies] in, but it just didn’t make sense for a first-class shopping center, which is what I promised those national tenants.”
The appraisal of the Scottsdale Center was $44.6 million when the U.S. Bank loan was made in 2007. The appraisal as of July 2017 was $26.81 million.