Loan woes heighten risks to American Dream bonds

Three missed mortgage payments on another megamall property operated by the owners of the bond-financed American Dream development have investors concerned whether the large-scale New Jersey project can withstand the lengthy closure caused by the COVID-19 pandemic.

American Dream developer Triple Five Group missed three straight monthly loan payments on a $1.4 billion mortgage for the Mall of America in Minnesota that it also owns. Last year, Triple Five was forced to put up Mall of America as collateral on a construction loan for American Dream.

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“The unknowns of whether the developers will step up makes it very hard for bondholders,” said municipal bond analyst Joseph Krist. “At the end of the day you want to know you have someone behind the credit that will step up and carry a deal during trying times.”

Wells Fargo, the servicer overseeing the Mall of America mortgage, did not immediately respond for comment.

Triple Five’s financial struggles with the Mall of America loans exacerbate risks to American Dream bonds four months after closing due to the pandemic with no reopening in sight. The 3 million square-foot complex in East Rutherford, N.J, only partially opened last fall with some entertainment attractions.

The development, originally called Xanadu, first broke ground in 2004 before encountering a series of delays tied to the 2008 credit crisis.

Construction was eventually completed 15 years later, with the help of a $1.1 billion tax-exempt revenue bond transaction in June 2017, led by Goldman Sachs, backed by a payment in lieu of taxes agreement between Triple Five and the borough of East Rutherford. The unrated deal was comprised of $800 million in limited obligation revenue bonds and $287 million of grant revenue bonds, supported by anticipated sales tax revenue.

Tthe American Dream bonds have been thinly traded this summer, according to Dan Berger, senior market strategist at Refinitiv’s Municipal Market Data. A $1.7 million trade of the 2050 maturity was made on July 6, at junk-level spreads 650 basis points above the triple-A scale. The same bonds traded in early April at spread of 500 bps, he said.

Krist said many bondholders would like to sell, but can’t find buyers. While some bond investors were attracted to the high yield, he added, they fear the ongoing health crisis and questions of when consumers will embrace attractions with large crowds absent a coronavirus treatment or vaccine.

“Something like a pandemic of this scale, combined with the response to it, I don’t know how anybody could have factored that in,” Krist said. “You now have a truly black swan event.”

Wisconsin-based Public Finance Authority acted as a conduit issuer for New Jersey Sports & Exposition Authority, which operates the Meadowlands District where American Dream is located. Triple Five secured $1.6 billion in private construction loans from JPMorgan prior to the bond sale.

Triple Five Group's press office did not immediately respond for comment. Triple Five said in April that it was eyeing roughly 70% entertainment attractions and 30% retail at American Dream. It was previously targeting a 55% entertainment and 45% retail.

Evi Kokalari-Angelakis, founder and CEO of Golden Key Realty, a New York City-based investment sales firm, is bullish on American Dream despite its current challenges, stating, its entertainment options, such as Nickelodeon Universe and an indoor water park will be attractive to families. She also expressed confidence in JPMorgan and Wells Fargo to help combat near-term headwinds from the pandemic.

“The Triple Five Group loans are with entities that understand the situation very well and will work with the owners and be creative to overcome this crisis,” Kokalari-Angelakis said. “Because of everyone involved's excellent track record and experience, the parties will minimize the risk.”