Bellis Fair property could be auctioned. Here’s what might happen to the Bellingham mall
The future of Bellis Fair is unclear with rising interest rates and DBRS Morningstar reporting a decline in the value of Whatcom County’s largest mall as sales have declined.
Beacon Default Management’s website showed it had scheduled an auction for 10 a.m. on Friday, Oct. 28, for much of the property at Bellis Fair mall. The date was removed from the site by Friday evening, July 15.
Selina I. Parelskin, CEO of Beacon, said “there is no sale set on this property,” in an email to The Bellingham Herald Friday night.
Beacon was named the successor trustee earlier this year after the mall’s owner, Brookfield Property Partners, defaulted on a $93 million commercial mortgage-backed securities loan in February that had about $77 million remaining. Brookfield has owned much of the mall since 2018; retailers JC Penney, Target and Kohl’s own their spaces on the property.
An auction could be canceled or postponed if Brookfield were to successfully negotiate a loan modification and begin making payments on it.
Several messages left for Brookfield Property Partners seeking comment were not returned by Monday.
Ryan Martin, a commercial broker and the co-owner of Pacific Continental Realty in Bellingham, said that the double-whammy of rising interest rates and declining property value is really hurting Brookfield’s chance of remaining as owner of the property.
“It is possible that Brookfield will renegotiate the loan, but they have two significant headwinds crushing them right now,” Martin said in an email to The Herald.
Steven Jellinek, head of commercial mortgage-backed securities research at DBRS Morningstar, which recently downgraded the loan noted in an email to The Herald that a sale of the property could take some time because the market for this type of mall property is thin given the current economic climate.
According to the July report from DBRS Morningstar, the reappraised value of the Bellis Fair property owned by Brookfield was $49.1 million, well below the remaining balance of the loan.
The increase in online shopping and the pandemic have hurt sales at malls across the U.S. According to the DBRS Morningstar report, the occupancy rate at Bellis Fair dropped from 88% in December 2019 to 80% in September 2021. Across the Bellis Fair property owned by Brookfield, sales were estimated to be $359 per square foot in 2021.
While in loan default, Bellis Fair has operated normally and has more than 80 tenants. The mall sits on 70 acres and has more than 775,000 square feet of retail space.
Jellinek said malls like Bellis Fair typically generate sales in the $300-$500 per square foot range, putting the Bellingham mall in the lower end.
“The declining sales may make the borrower less likely to want to hold onto the property,” Jellinek said.
Brookfield Properties is one of the world’s largest real estate operators, handling more than 800 properties that have more than 375 million square feet of space, according to its website. Other Washington properties include the Alderwood Mall and Westlake Center.
The mall was built by General Growth in 1988 and acquired, along with the 2011 loan, by Brookfield in 2018.
If Bellis Fair were to be auctioned, Martin said it would be difficult to determine what the price would be for such a large, complex retail property.
“A prospective purchaser is going to need extensive time for feasibility of a project of this scale, which is difficult in an auction setting,” Martin said in an email. “Without time to properly vet out all potential issues, investors typically default to worse-case scenario, which results in a lower willingness to pay.”
If auctioned off, Martin believes a developer with the right vision could create an amazing urban village with the property, creating higher demand for the existing stores.
“The reality is that less people are interested in spending their time in malls, and more people are interested in creating memories with their friends and family, while supporting local businesses. This is a trend that I see continuing,” Martin said.
This story was updated with new information July 15, 2022.
This story was originally published July 15, 2022 at 10:54 AM.
