Andrews: Sears closings will impact local loans
It was not just the retail world that was shaken by the recent announcement that Sears Holdings would close 100 to 120 stores. Holders of long-term loans secured by Kmart and Sears leases were also left unnerved by the announcement since, according to industry watchdog TreppWire, "Sears and Kmart both have a sizable presence among CMBS collateral." And while there have been no store closings announced in southern Louisiana as of the date of this writing (the closest is a Sears in Jackson, Miss.), the impact will still be felt in our area. Commercial real estate lenders like diversification of risk, and it makes them nervous if a significant amount of a loan's repayment source comes from a single tenant. The risk is mitigated if the tenant has a strong credit rating and a positive outlook, and I have closed numerous retail loans with strong anchor tenants (though to be honest, not recently). The challenge in underwriting comes up with weaker anchor tenants or longer-term loans that are subjected to the risk of changes in a currently strong retail tenant's fortunes. I expect that the lenders in our area will be aware of the Sears situation in at least an anecdotal sense and approach all retail transactions with concentrations of tenant credit in a cautious manner even when a Sears or Kmart is not involved. This will translate into shorter amortizations, shorter maturities and lower loan-to-value ratios for all such transactions.
(Brian Andrews is a certified mortgage banker specializing in the financing of commercial real estate. His business is Andrews Commercial Real Estate Services, and he can be reached at [email protected].)
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