FairOaks Mall, shackled with $21.2 million in unpaid mortgage debt, is about to get new owners at a court-sanctioned sheriff’s sale sought by lender Wells Fargo Bank and approved by Bartholomew County Superior Court Judge Jim Worton last week.
No date has yet been set for the auction of the 415,000-square-foot retail center, but real estate professionals are eager to see how much interest the mall attracts from regional or national bidders. Court records say an auction date will be set as soon as Wells Fargo’s attorneys request one.
Opinions are split in real estate circles on how much interest there will be in buying and trying to revive FairOaks Mall, which is about one-third vacant.
“If FairOaks goes to auction, there will be a fair amount of interest,” said Mark Pratt, a Columbus-based commercial real estate broker with Breeden Inc.
An improved outlook for retail sales and bargain prices at which some other distressed malls have sold around the U.S. are among factors that could help FairOaks entice potential bidders, Pratt and a handful of other retail analysts said.
But John Bemis, director of leasing and development for Jones, Lang, LaSalle in Atlanta, said resurrecting a declining mall in a community the size of Columbus will be a tough task.
Bemis handled leasing of FairOaks during the early 1990s at the start of his real estate career.
The mall was controlled at the time by Michigan-based Schostak Brothers & Co., which had owned the mall from its beginnings in 1990 until selling the property in 2003 to Fair Oaks Mall Acquisition LLC of Lakewood, N.J.
Revitalizing FairOaks will be “a long and arduous task, and it will require a significant amount of capital,” Bemis said last week. “I hate to hear that it has fallen on hard times. But it’s a vary familiar story.”
FairOaks, located off 25th Street near Central Avenue, faces stiff competition from fancier malls in Indianapolis, and to a lesser extent from retail centers in Louisville or even College Mall in Bloomington, Bemis said. FairOaks’ three remaining anchor stores are J.C. Penney, Carson’s department store and Kmart.
“Whoever becomes the next owner is definitely going to have to consider some sort of adaptive reuse of at least part of the mall to make it worthwhile,” Bemis said. One option would be to seek out new tenants among government agencies, academic institutions or even churches, he said, while keeping “a reduced retail footprint” as a base.
Anchor tenants at the mall said they’re aware of FairOaks’ financial situation, but most said all they can do at this point is wait for the legal case to play out.
Howard Riefs, a spokesman for Kmart, said the company has a long-term lease. He added: “We are closely monitoring the situation at the FairOaks Mall, and we have the ability to remain there a very long time if we choose. In the meantime, Kmart will continue to serve our members and customers in Columbus at the mall.”
Mary Kerr, a spokeswoman for Carson’s, said: “We are aware of the order regarding this mall. At this point, we have to wait like everyone else as to the outcome of the sale. All we can do at the moment is monitor the situation. Our lease has a few more years on it. Beyond that, we wouldn’t be able to provide further comment.”
Joey Thomas, media relations manager for J.C. Penney, declined to comment on the foreclosure sale.
Kim Showalter, general manager of FairOaks Mall for local manager Veritas Realty, said the sheriff’s sale “has no impact on tenants. Their leases continue without interruption.”
Court battle lasts nearly a year
Judge Worton’s directive calling for a sheriff’s sale came after FairOaks’ owners and Wells Fargo filed a combined motion in court asking for the auction to be set.
“The borrower has fully cooperated with (the bank) with respect to this ... turnover of the mortgaged property,” attorneys for both sides told Worton in their joint legal filing this month.
The latest development amounts to FairOaks’ owners mailing the property’s keys back to their lender in lieu of paying what the bank says they owed.
This comes 11 months after Wells Fargo, acting on behalf of numerous mortgage holders in a real estate trust, filed the foreclosure lawsuit to collect principal, interest and other fees tied to a past-due $17.5 million loan signed in June 2006.
At last count, court records show FairOaks owed $21,195,621 in principal, interest, assorted fees and legal bills tied to that 10-year mortgage document.
The suit contends Fair Oaks Mall Acquisition defaulted on its loan by missing eight $119,586.75 monthly payments between October 2010 and May 2011.
That led to the entire loan being called via a demand letter that was sent to the mall’s owners May 10, 2011.
Randy Clark, who oversees foreclosure auctions at the Bartholomew County Sheriff’s Office, said he’s setting sheriff’s sales for other properties on May 14 but hasn’t gotten a request to put FairOaks Mall into that batch yet.
Indianapolis-based lawyers Jay Kennedy, representing Wells Fargo Bank, and Zeff Weiss, representing FairOaks’ owners, did not return messages seeking comment.
Pratt and other real estate observers are hesitant to guess at a possible sales price the mall might fetch at auction. Sheriff’s sales generally allow anyone to bid, but the lender reserves the right to take back the property itself to settle debts.
One national study by Real Capital Analytics, a New York-based research firm, concludes that recent troubled mall sales around the U.S. fetched 61 percent of the debt owed on average through the first nine months of 2012.
In FairOaks’ case, such an outcome would mean a sales price of roughly $12.9 million based on principal, interest and fees owed at the end of last year. That would still be about one-third below the mall’s latest appraised value of $18 million, according to the Bartholomew County Assessor’s Office.
Pratt, who attended a commercial real estate conference in Las Vegas last week, said the national spin he’s hearing suggests the next 12 to 18 months may be a good time to buy underperforming retail or office space as developers bank on an improving U.S. economy.
“The feeling is that there’s going to be a (retail) rebound,” Pratt said from the conference Thursday. Others said it’s impossible to predict how much a new developer might be willing to pay for FairOaks without analyzing the Columbus retail market more deeply.
Tenants take stock
The mall has seen tenants leave in recent years, and at the end of last week 21 of its 55 storefronts were vacant. Several shop owners who remain at the mall have complained of thin crowds most days.
The mall’s leasing agents, Veritas Realty of Indianapolis, called a meeting of tenants last week — described by one of them as rare — to address any concerns about the pending sheriff’s sale.
Victor Ma, owner of Mark Pi’s China Gate restaurant at FairOaks, said Veritas officials told tenants there’s nothing to worry about, and anyone with an active, valid lease will see that document honored.
Shoppers and a handful of mall walkers taking strolls around FairOaks’ corridors last week said they hope a new owner can revitalize the retail center.
“I like to shop at Christopher & Banks for women’s clothes, J.C. Penney and the Petals & Vines gift shop,” said Sally Cowan, an Elizabethtown resident who frequents FairOaks.
“The prices are generally great. But it does look like the (shoppers) have gone to Walmart or the Edinburgh Premium Outlets mall. It’s sad.”
“Somehow the crowds aren’t here,” mall walker Dorothy Pickett of Columbus said Thursday afternoon as she made another loop around the corridors. “There are so many stores closed. Business has been very slow for a long time.”
State records show the managing member of Fair Oaks Mall Acquisition is real estate developer and investor Menashe Frankel of Lakewood, N.J. However, no one answered calls or returned voice mails left on a business phone listed in Frankel’s name.