Source: Commercial Mortgage Alert
 
Pyramid Cos. has agreed to gradually pay down as much as $75 million of a matured $550 million mortgage on Palisades Center mall in suburban New York in return for an extension of up to two years.
 
Under the agreement, which was approved this week, all excess cashflows from the 2.3 million-square-foot Rockland County property will be diverted to amortize what was previously an interest-only loan.  If the full extension is enacted, that “cash trap” is likely to result in the payment of $50 million to $75 million of principal.  Pyramid also put up a small amount of cash to firm up reserve balances and cover some undisclosed expenses.
 
The initial one-year extension is retroactive to the Feb. 9 maturity date.  An additional one-year extension, until Feb. 9, 2012, could be exercised under certain conditions.
 
Even though the trophy mall is performing well, Pyramid has been unable to refinance the loan because of the sharp drop in property valuations.  The extension gives the Syracuse, N.Y., mall operator breathing room.  The company finalized the terms on Wednesday with special servicer Helios AMC of San Francisco.  Deutsche Bank, as indirect holder of the junior portion of the loan, also played a big part in the negotiations.
 
The mortgage remains pegged to one-month Libor plus 95 bp.  Pyramid will purchase an interest-rate cap limiting the Libor rate to about 2%, preventing a significant jump in interest payments that would eat into the cash trap.
 
Pyramid lined up the Palisades mortgage from Deutsche in 2005.  Deutsche securitized the $512.2 million A-note and $37.8 million B-note via a $2.2 billion commercial MBS offering (COMM, 2005-FL10).  The B-note consisted of four “rake” classes apart from the rest of the deal’s collateral pool.  Those tranches were brought by a $1.3 billion CDO sponsored by Deutsche – Spring Asset Funding, 2006-1.  As holder of the junior rake class, Deutsche controlled any workout of the loan.
 
The mortgage had a two-year term, but Pyramid exercised three one-year extension options, which brought the final maturity to Feb. 9. Deutsche entertained offers to sell its stake in the loan to vulture investors around that time.  That made it crucial for Pyramid to negotiate a loan extension with Helios and Deutsche, because a buyer of Deutsche’s position might have blocked an extension in a bid to gain control of the mall.
 
As the Feb. 9 maturity date approached, Helios granted an interim 90-day extension so Pyramid could negotiate a longer-term agreement.  It then granted another 30-day extension on May 9 while negotiations continued.
 
Palisades Center, in West Nyack, N.Y., is the crown jewel in Pyramid’s portfolio of 19 retail properties in New York and Massachusetts.  The fully occupied property, which opened in 1998, generated net cashflow of $50.5 million last year, or 6.4 times the amount needed to cover loan payments.