Once-AAA Bonds on New York Megamall Face Over $350 Million Loss

Skip to Content News Archives Economy Energy Oil & Gas Renewables Electric Vehicles Mining Commodities Agriculture Real Estate Mortgages Mortgage Rates Finance Banking Insurance Fintech Cryptocurrency Work Wealth Smart Money Wealth Management Investor Personal Finance Family Finance Retirement Taxes High Net Worth FP Comment Executive Women Puzzmo Newsletters Financial Times Business Essentials More Innovation Information Technology FP500 Podcasts Small Business Lives Told Tails Told Shopping Financial Post Store Obituaries Place a Notice Advertising Advertising With Us Advertising Solutions Postmedia Ad Manager Sponsorship Requests Classifieds Place a Classifieds ad Working Profile Settings My Subscriptions Saved Articles My Offers Newsletters Customer Service FAQ News Economy Energy Mining Real Estate Finance Work Wealth Investor FP Comment Executive Women Puzzmo Newsletters Financial Times Business Essentials This advertisement has not loaded yet, but your article continues below.HomePMN BusinessOnce-AAA Bonds on New York Megamall Face Over $350 Million LossPyramid Management Group, a shopping center developer, is buying back the mortgage on a struggling megamall it owns in Syracuse, New York, for cents on the dollar, mostly wiping out bonds that originally carried top ratings.Author of the article:Eliza Ronalds-Hannon, John Gittelsohn and Scott Carpenter You can save this article by registering for free here. Or sign-in if you have an account.(Bloomberg) — Pyramid Management Group, a shopping center developer, is buying back the mortgage on a struggling megamall it owns in Syracuse, New York, for cents on the dollar, mostly wiping out bonds that originally carried top ratings.THIS CONTENT IS RESERVED FOR SUBSCRIBERS ONLYSubscribe now to read the latest news in your city and across Canada.Exclusive articles from Barbara Shecter, Joe O'Connor, Gabriel Friedman, and others.Daily content from Financial Times, the world's leading global business publication.Unlimited online access to read articles from Financial Post, National Post and 15 news sites across Canada with one account.National Post ePaper, an electronic replica of the print edition to view on any device, share and comment on.Daily puzzles, including the New York Times Crossword.SUBSCRIBE TO UNLOCK MORE ARTICLESSubscribe now to read the latest news in your city and across Canada.Exclusive articles from Barbara Shecter, Joe O'Connor, Gabriel Friedman and others.Daily content from Financial Times, the world's leading global business publication.Unlimited online access to read articles from Financial Post, National Post and 15 news sites across Canada with one account.National Post ePaper, an electronic replica of the print edition to view on any device, share and comment on.Daily puzzles, including the New York Times Crossword.REGISTER / SIGN IN TO UNLOCK MORE ARTICLESCreate an account or sign in to continue with your reading experience.Access articles from across Canada with one account.Share your thoughts and join the conversation in the comments.Enjoy additional articles per month.Get email updates from your favourite authors.THIS ARTICLE IS FREE TO READ REGISTER TO UNLOCK.Create an account or sign in to continue with your reading experience.Access articles from across Canada with one accountShare your thoughts and join the conversation in the commentsEnjoy additional articles per monthGet email updates from your favourite authorsSign In or Create an AccountThe losses for holders of the bonds backed by Destiny USA are among the largest in a series of severe losses sweeping through the market for what were once highly rated commercial mortgage-backed securities. Properties in New York, San Francisco and beyond have seen their appraised values slashed, hitting bonds that funded individual offices, malls and hotels.Pyramid will pay less than 20 cents on the dollar of the original $430 million debt to settle with bond holders, after making the highest offer in a recent open market sale, according to people with knowledge of the transaction. The developer must still provide a deposit for the deal to close, which could happen as soon as the end of this month, according to the people, who asked not to be named before the transaction is completed. A Pyramid spokesman declined to comment. Get the latest headlines, breaking news and columns.By signing up you consent to receive the above newsletter from Postmedia Network Inc.A welcome email is on its way. If you don't see it, please check your junk folder.The next issue of Top Stories will soon be in your inbox.We encountered an issue signing you up. Please try againThe ultimate losses to bondholders aren’t yet clear because the sale isn’t final. But they are set to be more than $350 million, amounting to one of the biggest losses for a CMBS deal in dollar terms to date, according to data compiled by Barclays. “It’s the same over-leveraged, bygone-era enclosed mall story that’s been playing out across the CMBS market since Covid,” said Daniel McNamara, founder and chief investment officer at Polpo Capital Management LLC, a hedge fund that often bets against CMBS. Destiny USA is the largest mall in New York, but it’s based in the fifth-largest city in the state. The developers hoped that the 2.4-million-square-foot retail, hotel and entertainment complex would attract shoppers and travelers from across the northeastern US and Canada. It has an indoor ropes course, a go-kart raceway and a 19-screen movie theater. The project has been developed over the course of decades, and Syracuse officials viewed it as a way to boost a Rust Belt economy that has seen its population shrink amid a decline in US manufacturing. The highest quality notes nabbed a AAA rating in 2014, with investors such as asset manager Lord, Abbett & Co. among the biggest holders today. A spokesperson for Lord Abbett declined to comment. But the mall has struggled to attract sufficient traffic to fully live up to the vision of its developers. One problem for CMBS investors: In 2007, long before the securities were marketed, the mall was financed in part with so-called PILOT bonds — municipal bonds backed by payments Pyramid made in lieu of taxes — offered by a Syracuse agency. About $235 million of those securities are still outstanding and the developer continues to make payments on the debt. The PILOT bonds have priority for repayment before the commercial mortgage bonds, even though the municipal securities had a lower rating when the CMBS were sold. “The fact that the Destiny Mall municipal bonds, which are structurally senior to the CMBS debt, were originally rated single A, while $215 million of subordinate CMBS bonds were rated AAA, is an insult to common sense,” McNamara said. In the years since the bonds were sold, the appraised value of Destiny USA has fallen by around three-quarters as Americans shifted to online shopping. Anchor tenants like J.C. Penney Co. Inc. and Best Buy Co. Inc. shuttered stores. This advertisement has not loaded yet.This advertisement has not loaded yet, but your article continues below.Pyramid was unable to pay back its mortgage in 2022 as cash flow slowed and it entered forbearance. Borrowing costs also soared as the Federal Reserve raised interest rates, making refinancing even more challenging.In 2025, it tried to purchase the debt for about $70 million but failed to land financing. This year it managed to line up capital partners to help fund an even lower bid during the recent sale process run by Newmark Group Inc., according to people with knowledge of the deal.The mall’s prospects could improve in the coming years thanks to government efforts to stimulate technology manufacturing. A few miles north of the mall, Micron Technology Inc. is building what could become the largest semiconductor factory in the US, potentially providing a huge boost to the local economy. The project is part of what could be as much as a $100 billion investment in New York state by Micron. Governor Kathy Hochul’s administration says the investment will create 50,000 new jobs. Pyramid, a family-owned developer with nine shopping centers in New York and Massachusetts, has struggled for years to save many of its properties. Now it is expanding. In May, it announced a deal to buy Providence Place in Rhode Island. —With assistance from Martin Z. Braun.Notice for the Postmedia NetworkThis website uses cookies to personalize your content (including ads), and allows us to analyze our traffic. Read more about cookies here. By continuing to use our site, you agree to our Terms of Use and Privacy Policy.