GUILDERLAND — After dragging its feet for months on a request from the town of Guilderland to hand over financial documents, Crossgates Mall is now looking to have aspects of its two tax lawsuits against the town wrapped up by the end of the year. 

In July of last year, citing the impact of the pandemic and the yearslong decline of brick-and-mortar retail, Crossgates Mall asked an Albany County Court judge to lop off $139 million from its $282 million tax assessment — cutting its assessed value nearly in half.

In a petition filed July 9, Crossgates, again citing similar reasoning, requested that Justice Margaret T. Walsh slash $162.5 million from its current assessed value of $282.5 million.

In an Aug. 23 letter to Judge Walsh, the mall recapped an earlier conference with Walsh that laid out dates the two sides had agreed to: an Oct. 8 deadline for Guilderland to complete its audit of Crossgates’ financial information and Dec. 31 as the date the two sides would exchange appraisals each had performed on the property. 

Crossgates stated in its letter that, “as the parties worked to memorialize these discussions in a proposed scheduling order, however, it became apparent that there was a disagreement between the parties as to whether the December 31, 2021 appraisal exchange deadline applied only to the 2020 proceeding or to both the 2020 and 2021 proceeding.” 

Crossgates then made it clear it wanted to consolidate its 2020 and 2021 tax certiorari proceedings against the town into one suit, and that, on Dec. 31, it wanted the two sides to exchange appraisals for tax years 2020 and 2021. Which Crossgates noted at the time Guilderland was against, only consenting to a Dec. 31 appraisal exchange for tax year 2020.

In a Sept. 17 letter to Walsh, the town continued to oppose consolidation of the tax suits, arguing that the issue had yet to be “joined,” a legal term meaning whole cases can be joined or consolidated into a single proceeding if the “action before the court involve[s] a common question of law or fact,” according to the Federal Rules of Civil Procedure.

“The request for consolidation,” the town states, “is therefore premature.”

The Sept. 17 letter to Walsh from town attorney William Ryan, pointed out 2020 and 2021 would have different valuation dates, the circumstances of which “were completely different.”  The 2021 case would be based on a July 2020 Crossgates’ valuation — a time when the state’s malls had been closed for three of the year’s six months — compared to a 2020 tax hearing, which would be based on numbers from July 2019.

Consolidating the proceeding, the town stated, would “result in confusion and prejudice by interjecting numerous additional legal and factual issues related to the covid pandemic into the 2020 proceeding.” The town also argued that consolidating the cases would delay the outcome of the 2020 proceeding, which already has agreed-upon deadlines for the audit and appraisal exchange. 

“In contrast,” Guilderland’s Sept. 17 letter states, the town still has time left on the clock to “demand and conduct” an audit of Crossgates’ 2021 finances, “assuming it elects to do so,” as the town has yet to even respond to the Crossgates initial petition, filed on July 9. The town filed an answer and its demand for income-and-expense information on Oct. 6.

“Further, while Petitioners would like to streamline the 2021 proceeding, we still have to prepare an answer, review the voluminous materials produced, determine if any additional materials are needed, and prepare an appraisal report,” the town argued in its Sept 17 letter. “Given that the 2021 proceeding concerns a valuation date of July 2020, we will also have to spend additional time and resources researching the effect of covid (if any) on valuation.”

The town concluded that, “based on the voluminous materials provided” for the 2020 tax certiorari hearing and “assuming that there is no” 2021 financial audit, the earliest Guilderland could complete an appraisal for the 2021 proceeding would be “on or about” April 29, 2022.

Getting better

Crossgates’ finances have rebounded significantly from this time last year.

The mall had a net operating income of $14.4 million for the first six months of 2021, up from $5.8 million for January through June of 2020.

Net operating income is a formula used to analyze the profitability of an income-generating real-estate asset. To find net operating income, “all reasonably necessary operating expenses,” like property-management fees, insurance, property taxes, and property upkeep are subtracted from revenue, which, in the case of Crossgates, comes from rent.

The first half of 2021 is still down from the mall’s pre-pandemic numbers, when Crossgates had a net operating income of $14.96 million for the first six months of 2019 and $15.1 million for the same period in 2018 — and is down significantly from January through June of 2017 and 2016, when Crossgates’ net operating income was $17.3 million and $17.4 million, respectively. Additionally, the $14.4 million operating income Crossgates had for the first six months of this year is not too far off of earlier income figures. In January through June of 2013 and 2014, the mall had net operating incomes of $14.6 million and $14.9 million, respectively. 

Crossgates’ $14.4 million operating income for January through June of this year is notable, considering it was dealing with a number of pandemic-induced permanent tenant closures — like the loss of anchor tenant Lord & Taylor and its $960,000 in annual rent, a hole the mall has plugged in the short-term with $455,000 in state funds, hosting the mass-vaccination clinic that moved from the uptown University at Albany campus.

Finances 

Guilderland first demanded Crossgates turn over financial documentation to prove its property was “not income-producing” in October of last year. 

The three limited-liability companies that own Crossgates — Crossgates Mall DevCo, PCC NewCo, and Crossgates Mall General Company NewCo — in a Sept. 7 filing with the court handed over their income-and-expense statements for the years ending 2019 and 2018, which the filing states are for the “tax year 2020/21 (calendar year 2019).”

The rent rolls show the mall took in a little over $30 million in lease payments and another $13 million worth of taxes, insurance, up-keep fees, and electricity costs from 150 tenants in 2019. 

The balance sheets of the three limited-liability companies that own Crossgates are shown to have ended 2019 in the red, after accounting for various write-downs, deferrals, and other expenses. 

Paying the piper 

Crossgates’ loans were due to be paid off in May 2022, but the mall received a reprieve from its creditors, who gave the mall an additional year to pay off its debt.

The typical commercial mortgage-backed security (CMBS) loan is 10 years and non-recourse, meaning the loan is short-term in that the borrower has only 120 months to pay it off; however, the monthly payments are being made as if the borrower is paying off a standard 30-year loan.

Non-recourse means, if the borrower defaults on its loan, on, say, a mall, or declares bankruptcy, the only thing the lender can take as collateral is the asset. The lender has no right to go after the borrower’s other assets, like, for example, the 16 other malls the borrower may own. In contrast, a recourse loan requires a borrower’s personal guarantee, meaning if there’s a default and the lender isn’t able to recoup its full investment by selling the property, the borrower and its personal assets are on the hook to make up the difference. 

With a 10-year loan that is spread out equally over 30 years, a borrower is doing little more than covering the interest on the loan and not putting a dent in the principal, leaving a large balloon payment after 10 years. 

With Crossgates knocking nearly $500,000 off the principal each month (and $1.8 million in interest payments), come May 2023, the mall would be looking at a balloon payment somewhere in the neighborhood of $244 million. 

That is, unless it refinances or is sold before then. 

Bloomberg News reported in March that “the pandemic has hit few mall operators harder than Pyramid Management Group,” the parent company of Crossgates; Pyramid’s 14 malls had a pre-pandemic aggregate value of $4 billion.

But reappraisals on eight of those malls, “slashed valuations” by an average of 59 percent; Crossgates’ valuation was cut by 40 percent. Bloomberg reported Pyramid was receiving reprieve from creditors and wasn’t ready to start selling off properties just yet, but also couldn’t guarantee it would “be able to keep everything.”

This past summer, Crossgates’ appraised value was slashed from $470 million to $281 million. 

In contrast with, say, a home loan, where the value of the asset is dependent on being able to sell the property in a pinch, the value of a commercial property loan is largely determined by its ability to generate a stream of cash. 

Commercial loan lenders typically use two metrics to determine a borrower’s risk: the debt-service coverage ratio (DSCR) and loan-to-value (LTV) ratio. 

DSCR is a measurement of a company’s ability to pay its current debt obligations. A debt-service coverage ratio of less than 1 indicates negative cash flow, which means that the borrower would be unable to cover or pay current debt obligations without drawing on outside sources — in essence, borrowing more.

A property with a DSCR of 1.5 generates enough income to pay all of its annual debts, as well as its operating expenses, in addition to producing 50 percent more revenue than is needed to pay its debts and operating expenses.

Crossgates in March of last year had a DSCR of 1.28; by December 2020, its DSCR had dropped to .75. As of June of this year, two loans accounting for $162.6 million of Crossgates’ debt were reported by credit-rating agency Morningstar as having DSCRs of 1, meaning the mall took in just enough revenue to cover its debt obligations — the third outstanding loan, worth $91.5 million, had a last-reported DSCR date of September 2017, when it was 1.43.

The loan-to-value ratio is a number that determines whether or not a borrower can qualify for a CMBS loan, which would be important to Crossgates sometime in the next 19 months. 

The LTV ratio is defined as the principal loan amount divided by the market value of the property. A higher appraisal value helps a borrower be eligible for a larger loan balance as well as a lower interest rate; the lower the LTV ratio, the stronger the odds the loan will be able sustain a decline in property value.

In 2012, Crossgates refinanced approximately $181.1 million of debt it had on its books. The mall was able to secure $299.2 million in loans, which allowed it to pull $110 million in equity out of the property, $25 million of which was used to repurchase the anchor tenant space of Dick’s Sporting Goods. Macy’s is now the only Crossgates tenant to own the land on which it sits. The retailer is currently attempting to slash the assessment on its 12 acres from $15.7 million to $3 million.

The three mortgage-backed Crossgates loans that were issued in 2012 were based on a valuation of $470 million — an LTV of 63.66 percent. But Crossgates was reappraised over the summer and is now valued at $281 million — an LTV of about 90.4 percent. The higher LTV could hurt Crossgates if it tries to refinance its loans.