Starwood Woos Israeli Investors With Debt on Aging U.S. Malls

(Bloomberg) -- Looking to refinance loans on seven aging U.S. malls, Starwood Capital Group has secured commitments from a distant source: Israeli bond investors.

A subset of the global property company led by billionaire Barry Sternlicht raised 910 million shekels ($264 million) through a debt offering, which began trading on the Tel Aviv Stock Exchange this week. Investors snapped up the bonds in an auction ahead of public trading, and demand exceeded the amount Starwood sought to raise, according to Ori Eisenberg, who advised on the offering through his firm Barzell Global.

Starwood has turned to the bond market at a time when retail landlords across the U.S. are facing a record wave of store closures as shopping shifts online. Traditional lenders are shying away from funding all but the best retail real estate, and the lack of financing is a drag on mall values, according to property-research firm Green Street Advisors LLC.

Israeli investors appear eager to back Starwood’s regional malls, some of which are anchored by struggling department stores such as Macy’s, J.C. Penney and Sears. The centers subject to the offering -- three in Ohio, two in Southern California and one each in Indiana and Washington state -- were acquired by Starwood in 2013 from Australia’s Westfield for $1.6 billion. All opened in the 1970s.

“There is much weight to the sponsor behind the bond offering,” Eisenberg said. “In addition, even if this sector is not so hot today, if you look at the actual performance, these are very stable, large assets.”

Starwood didn’t have any immediate comment, said a spokesman, Tom Johnson.

Five of the malls carried a senior mortgage of $760 million, which matured in November and had a one-year extension, publicly available loan documents show. Most of the proceeds from the offering will be used to pay off a portion of that loan and the rest will be refinanced, according to bond documents filed in Israel. Another property, Southlake Mall in Indiana, had a $140 million loan that expired in January. The owners are seeking a refinance there, too, and the lender has agreed not to invoke a default, the Israeli documents show.

The securities, with a 5.7 percent coupon, were little changed in their first day of trading on Thursday. The Tel Aviv exchange is closed on Fridays.

The underwriters of the deal were Israel-based Poalim IBI and Leumi Partners. The properties in the offering, in addition to Southlake Mall, are Plaza West Covina, near Los Angeles; Parkway Plaza in San Diego County; Belden Village Mall, Franklin Park Mall and Great Northern Mall in Ohio and Capital Mall in Olympia, Washington.

--With assistance from Sarah Mulholland

To contact the reporter on this story: Oshrat Carmiel in New York at ocarmiel1@bloomberg.net.

To contact the editors responsible for this story: Daniel Taub at dtaub@bloomberg.net, Christine Maurus, Kara Wetzel

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