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OC Properties Prominent in $1.4B CMBS Package

Orange County has an outsized role in the commercial mortgage-backed securities market these days, with the Outlets at Orange shopping center and a pair of hotels near the Disneyland Resort backing one of the largest transactions in what has been a sluggish market so far this year.

The three OC properties are prominent parts of a newly issued CMBS conduit transaction led by JPMorgan Chase & Co. The deal includes 61 commercial mortgage loans that total about $1.4 billion as collateral, and is secured by 100 properties.

It’s the largest CMBS transaction seen in the U.S. over the past three months, according to industry data.

Banks have arranged about $23.6 billion in CMBS transactions this year, down about 30% from year-ago levels, according to data from Bloomberg last week.

CMBS deals topped out in 2007, when more than $230 billion in transactions took place.

The largest of the 61 loans put up as collateral for the $1.4 billion JPMorgan transaction is a $125 million note tied to the Outlets at Orange, the 787,697-square-foot shopping center next to the Garden Grove (22) Freeway.

$215 Million

The Outlets at Orange—owned by affiliates of Indianapolis-based Simon Property Group Inc.—now has $215 million in debt against it, according to the regulatory filings.

In addition to the $125 million portion of a first mortgage that is being contributed to the $1.4 billion CMBS transaction, another $90 million portion, also funded by JPMorgan, is expected to be contributed to a future CMBS securitization.

The new $215 million mortgage for the Outlets replaces a similarly sized loan that was taken out in 2007 by Simon Property and other part-owners of the mall at the time, according to regulatory filings.

Also part of the $1.4 billion CMBS transaction are loans tied to the 1,030-room Anaheim Marriott Hotel—OC’s second largest hotel by room count—as well as the 200-room Residence Inn Anaheim in Garden Grove.

The Anaheim Marriot has a $110 million loan tied to it, with $30 million of that part of the $1.4 billion JPMorgan-led transaction. The remaining $80 million is being packaged as part of another CMBS transaction.

The two-tower hotel, next to the Anaheim Convention Center, is owned by affiliates of Newport Beach-based Tarsadia Investments.

The Residence Inn Anaheim, an extended-stay hotel on Harbor Boulevard about a mile south of Disneyland, has $34 million in debt tied to it. The entire loan is part of the $1.4 billion JPMorgan transaction.

Improving Fortunes

The JPMorgan transaction shines a light on improving financial performance for the OC properties involved.

Sales at the Outlets at Orange increased from $405 per square foot in 2010 to $552 per square foot in 2013, while occupancy rates rose from about 90% to nearly 99% over that same time, according to regulatory filings tied to the CMBS transaction.

Among comparable properties, the nearby Westfield MainPlace mall in Santa Ana is estimated to have sales of about $371 per square foot, while the Village at Orange has sales of about $320 per square foot, according to the same filings.

SCP

South Coast Plaza, OC’s biggest and best-known shopping center, is estimated to have sales of about $865 per square foot (see related story, page 1).

The Outlets at Orange was known as The Block at Orange until it was rebranded in late 2011 amid a series of renovations to the nearly 70-acre property, which was OC’s ninth largest shopping center by sales last year.

Net operating income for the shopping center was about $24.8 million last year, according to regulatory filings.

An appraisal of the Outlets at Orange earlier this year placed the property’s value at about $418 million, or $531 per square foot.

That’s a valuation of about $60 per square foot more than an appraisal of The Shops at Mission Viejo, which was made early last year as part of its own financing deal.

Simon Properties is part-owner of The Shops, which was valued at about $540 million.

Hotels Up

The area’s hospitality market is also seeing an upswing in business, based on loan documents tied to the two Anaheim hotels that are part of the latest CMBS transaction.

The Anaheim Marriott has seen occupancy rates increase from about 66% in 2010 to nearly 73% at the end of 2013, while revenue per available room, or RevPar, jumped from $90 to $103 over the same period.

The nearby Hilton Anaheim—OC’s largest hotel in terms of number of rooms—now has an occupancy rate of 78% and RevPar, of $111.54, according to data from Smith Travel Research used in the CMBS documents.

The $110 million loan that Tarsadia took out for the Anaheim Marriott is reportedly being used to refinance $61.1 million in existing debt and return about $48 million of equity to the hotel investor.

The Anaheim Marriott had an appraised value of $170 million, or about $165,000 per room, as of last October.

Likewise, the Residence Inn Anaheim in Garden Grove saw occupancy rates increase from 71% in 2011 to nearly 78% at the end of last year, with RevPar jumping from $110 to $126 over the same time.

Palm Beach, Fla.-based real estate investment trust Chatham Lodging Trust bought the eight-story hotel in 2011 as part of a five-property portfolio deal, with the Garden Grove hotel valued at about $40.2 million at the time.

It was the largest hotel sale in OC seen that year.

The property now has an appraised value of $52.6 million, or $263,000 per room, according to loan documents.

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Mark Mueller
Mark Mueller
Mark is the Editor-in-Chief of the Orange County Business Journal, one of the premier regional business newspapers in the country. He’s the fifth person to hold the editor’s position in the paper’s long history. He oversees a staff of about 15 people. The OCBJ is considered a must-read for area business executives. The print edition of the paper is the primary source of local news for most of the Business Journal’s subscribers, which includes most of OC’s major corporate and community players. Mark’s been with the paper since 2005, and long served as the real estate reporter for the paper, breaking hundreds of commercial and residential real estate stories. He took on the editor’s position in 2018.
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