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REAL ESTATE

West Edmonton Mall financed again

Ghermezians issue mortgages worth $600-million

The secretive owners of the famous West Edmonton Mall, the Ghermezian family, are tapping the asset-backed securities market for the second time in 3½ years to raise hundreds of millions of dollars in a transaction that essentially converts much of the mall's equity into cash.

In the latest financing, the mall's owners are raising $600-million through the issuance of mortgages secured by the mall's assets, according to a 227-page prospectus filed by Column Canada Issuer Corp. That company is an affiliate of Column Canada Financial Corp., a Toronto-based company engaged in promoting structured financings for Credit Suisse Group of Switzerland.

The Column Canada deal was part of the $29.4-billion in debt and equity financings completed during the fourth quarter of 2006, up 21 per cent from the $24.3-billion raised during the same period a year earlier. In total, $101.4-billion was raised during 2006, compared with $87-billion in 2005.

The figures cover both debt and equity issues compiled by The Globe and Mail from prospectuses and other documents filed with Canadian regulators.

The growth in the securitized market reflects the low level of interest rates in capital markets and the amount of liquidity available.

The previous Column Canada-West Edmonton Mall deal, a $335-million financing, was the first time the public got a glimpse of the profitability of the famed shopping and amusement complex. That debt is due to mature on Oct. 11, 2008.

In the latest prospectus, the mall is estimated to have an appraised value of $926-million, up 54 per cent from the appraised value of $603-million in April, 2003.

The $600-million in proceeds received through the sale of multiclass pass-through certificates of Column Canada represent an interest in a first mortgage bond issued by West Edmonton Mall Property Inc.

In a tangled ownership web, members of the Ghermezian family and four family trusts control Alfam Properties Corp. and Triple Five Investment Ltd., which together own the West Edmonton Mall.

Neither Column Canada nor the West Edmonton Mall have responded to telephone calls.

"The [borrowers] have probably taken out their equity," said Erin Stafford, a senior vice-president of DBRS Ltd. "We don't know what they will do with that money."

Although the original $335-million in debt remains outstanding, it is no longer secured by the mall's assets, but the principal and interest is covered by a pool of government bonds in a process known as defeasance, according to Charles Gamm, vice-president and senior credit officer of Canadian structured finance for Moody's Canada Inc.

Defeasance of a securitized commercial mortgage is a process in commercial real estate finance by which a borrower substitutes other income-producing collateral, usually government securities, for a piece of real property to facilitate the removal of an existing lien without prepaying the existing debt.

The proceeds may have been used by the Ghermezian family through Triple Five Group Ltd., a private company, to acquire sole ownership of the Mall of America in Bloomington, Minn., by buying out the mall's other partners after a lengthy legal dispute. Although terms of the deal were not disclosed, The New York Times said several real estate specialists estimated the deal was worth $1-billion (U.S.). The mall is the largest retail-entertainment complex in the United States.

Several domestic mega-deals during the fourth quarter of 2006 involved medium-term notes. Those deals included $1.25-billion (Canadian) in two series by Bell Aliant Regional Communications LP, $825-million by Citigroup Finance Canada Inc., $600-million by Daimler Chrysler Canada Finance Ltd., $700.4-million by Talisman Energy Inc. and $1-billion in two series of notes by GE Capital Canada Funding. Manulife Financial Corp. raised $1.2-billion in two series of fixed-rate debentures.

Another asset-backed securities transaction, in addition to the Column Canada deal, was the issuance of $1.6-billion in fixed- and floating-rate notes by Ford Floorplan Auto Securitization trust, which were used to finance car and truck inventories of the dealers.

The credit card market was also buoyant with Glacier Credit Card Trust raising $570-million, Gloucester Credit Card trust $349-million and $1.25-billion in notes by Master Credit Card Trust.

The mortgage-backed securities transactions included $386.3-million by Canada Mortgage Acceptance Corp., $553.6-million by Merrill Lynch Financial Assets Inc. and $787.6-million by Real Estate Asset Liquidity Trust.

The major equity transactions included the sale of $1.3-billion in common shares by Brookfield Properties Corp., $461-million in units of Pengrowth Energy Trust and $525-million of Air Canada's class A and B common shares.

Seven companies raised $1.6-billion in preferred shares and eight others issued $1.1-billion in convertible debentures.

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