Nearly five years after CityPlace faced foreclosure on its $150 million mortgage, the landlord again finds itself in a financial squeeze. Fitch Ratings said this week that the shopping-and-entertainment hub in West Palm Beach is staring down “imminent monetary default.”
In a commercial real estate paradox, CityPlace combines bustling crowds with a constant cash crunch — a conundrum some blame on the center’s continual turnover of restaurants.
Fitch noted that CityPlace’s occupancy fell to 81 percent in the third quarter of 2015, down from 95 percent a few years ago. On the bright side, the new convention center hotel at CityPlace might boost retail traffic, Fitch said.
CityPlace’s mortgage was placed in “special servicing,” a category for problem loans, according to Fitch.
Proving that bustling activity doesn’t always translate to a profitable property, CityPlace was hit with a foreclosure filing in 2011. The project’s owner, The Related Cos., negotiated a two-year extension of the loan and kept control of the property.
UPDATE: CityPlace offers this comment:
“The CityPlace retail debt is not delinquent and remains current on its debt service payments. CityPlace Partners has proactively engaged the special servicer in an effort to seek flexibility from our lenders and ensure the long-term success of CityPlace. We have continued to significantly reinvest in the property and are seeking to realign the retail loan with the dramatic shift in economic conditions that have impacted the property.”
CityPlace didn’t specify what “dramatic shift” it was referring to. Commercial real estate values reached record levels nationally in 2015, and Palm Beach County’s economy has been on the upswing. Population growth has returned, home prices have rebounded, the county’s unemployment rate fell to 4.5 percent in December and a record number of tourists visited the county last year.
While CityPlace packs in the crowds on weekends, the comings and goings of its tenants are legion. The roster of eateries that have left over the years includes Bacio, Brewzzi, B.B. King’s, Carousel Can Can Cafe, Cheeburger Cheeburger, Columbia, Field of Greens, Italian Oven Cafe, Jinja Bar, Kona Grill, La Salsa, Legal Sea Foods, Mark’s CityPlace, McCormick & Schmick’s, Original Steakhouse, Taco Vida, Taverna Opa, Wild Ginger Asian Bistro and Wild Olives.
When a tenant leaves, the landlord is forced to eat a variety of costs, including lost rent and legal expenses, plus tenant improvements and brokerage commissions for the replacement restaurant.
“The fact that you have 81 percent occupancy doesn’t mean you’re in a good cash flow position,” said restaurant broker Richard Lackey. “They’re having to replace tenants too often. The cost to replace a new tenant is an inordinate cost.”
CityPlace is home to a number of longtime tenants, including BRIO Tuscan Grille, Cheesecake Factory, City Cellar Wine Bar & Grill and Il Bellagio.