GUILDERLAND —  Crossgates Mall has gotten the town of Guilderland to agree to a confidentiality pact in its lawsuit against the town that seeks to cut the mall’s assessed value by nearly half. 

The judge overseeing the case signed off on the protective order on March 18.

The agreement between Crossgates and Guilderland would limit “the review, copying, dissemination, and filing of confidential and/or proprietary documents and information to be produced by either party and their respective counsel.”

The two sides have agreed to the stipulation in order “to facilitate the production, exchange and discovery of documents and information that the Parties and, as appropriate, non-parties ….”

Either side may designate as confidential any documents filed or testimony given in connection with the case, for example, if the information contains “trade secrets, proprietary business information, competitively sensitive information, or other information the disclosure of which would … be detrimental to the conduct of that Party’s or non-party’s business ... or clients.”

And the stipulation “continue[s] to be binding after the conclusion of this special proceeding,” after which the town and Pyramid have 60 days to destroy all the confidential information shared between them. 

William Ryan, the attorney representing Guilderland in the tax certiorari case, told The Enterprise it wasn’t “unusual” for the town to enter into a confidentiality agreement. Crossgates’ financials will still be disclosed, Ryan said, “It’s just a question of not having [them] publicly disseminated.”

Ryan went on to explain that “all the filings will [continue to] be public, and if there’s sensitive financial information, that will be blacked out.”

Over the past year, as the pandemic weakened to the point of near-collapse the foundation on which Crossgates and its owner, the Pyramid Management Group, had built their businesses, the companies found other ways to generate revenue — chief among them, lawsuits, and lots of  them.

Across New York State, a number of Pyramid-owned shopping centers are suing local municipalities to lower their tax burdens or suing their tenants for delinquent rent payments.

Crossgates is currently suing at least 14 of its tenants for about $2.6 million in combined back-rent.

Last July, the three limited-liability corporations that own Crossgates filed their petitions against the town, arguing the mall should receive a $139.2 million reduction on its $282.5 million assessed value because, “Prior to the issuance of the Town’s tentative assessment roll for 2020, [Crossgates] provided and offered information to the Town’s Assessor concerning the Property and its value, and advised the Assessor that the Property’s value had declined year-over-year due to continuing pressure on its ‘bricks-and-mortar’ business from e-commerce, sales declines, and record bankruptcies, and store closures, particularly for department stores and fashion retailers that were once the primary focus of [Crossgates’] business.”

The town responded by arguing that the first appearance of coronavirus and nature of pandemics in general were not reasons for cutting Crossgates assessment in half. The pandemic, however early it may have begun, Guilderland argued, still occurred “outside the scope” of the town’s 2020 assessment on the land.

Crossgates’ pandemic argument also failed on the facts, the town argued in its October 2020 response, because, according to New York State property law, “the grounds for reviewing an assessment shall be that the assessment to be reviewed is excessive, unequal or unlawful, or that real property is misclassified.”

A few weeks later, Guilderland demanded Crossgates turn over dozens of financial records to prove the property “is not income-producing.”

All of the legal paperwork filed by the town and mall was set to go to Albany County Supreme Court Justice Margaret Walsh on Oct. 1, 2020, with a ruling on the matter expected within 60 days of the filing. But by Oct. 8, the town had yet to receive proof, in the form of a verified income and expense statement, from Crossgates that its property hadn’t been income-producing.

Instead, on Oct. 28, Crossgates, in what appeared to be little more than a stalling tactic, filed an amended petition that bore a striking resemblance to the one filed by the mall in July.

Right before the start of the New Year, Ryan, representing Guilderland, sent a letter to Walsh, asking the judge if she’d “be kind enough to schedule a conference for the ... tax certiorari proceeding … [because] the town would like to discuss the date by which an appropriate response to our prior demand for a verified income and expense statement will be served by the petitioners ….”

History of suits

Crossgates had previously and repeatedly sued the town in the past to lower its assessment, claiming that Crossgates Mall was worth $119 million — while the town had assessed it at $198 million.

The mall commenced individual tax certiorari proceedings challenging its assessments for the tax years 1993-1994, 1994-1995, 1995-1996, 1996-1997, and 1997-1998 — finally in 2002, the town moved to have the proceedings dismissed because Pyramid hadn’t filed any paperwork in the matter for four years.

In 2003, the judge ruled in favor of the town and ordered Pyramid to pay Guilderland’s court costs, $1 million. But the issue would drag on for another two years, a 12-year ordeal in all, when Pyramid finally acquiesced to Guilderland’s $198-million assessment in February 2005, ultimately leaving $24 million on the table.

In May of last year, Pyramid began bemoaning its business decisions in the pages of the Wall Street Journal. The company told the Journal that it “had invested hundreds of millions of dollars in recent years to make its retail centers about more than shopping.” The company at the time had $1.6 billion worth of commercial mortgage-backed securities debt on 11 of its malls

Pyramid’s money problems were considered worse than those of its peers because it had a “large exposure to loans that are packaged into commercial mortgage-backed securities,” the Journal reported; it had been easier for some borrowers to “get relief from direct lenders such as banks or insurance companies during this crisis. But holding restructuring talks with servicers of CMBS loans has been difficult,” in part because they were overwhelmed with relief requests but also because “some aren’t obliged to respond until a default occurs.”

CMBS, or commercial mortgage-backed securities, are fixed-income investment products that are backed by mortgages on commercial properties. 

Pandemic struggles

Like many of the tenants it is suing for back-rent, Crossgates stopped paying its own bills when the pandemic hit, entering delinquency on its loans in May 2020.

For all of 2020, Crossgates had a COVID-stricken unaudited net operating income of $16,426,590 — in 2019, the mall’s operating income was $29,227,560; while tenant occupancy saw a 9-percent year-over-year decline, from 90 percent in 2019 to 81 percent last year, according to credit-rating agency DBRS Morningstar. 

The mall then asked for and was granted in June, a four-month deferral on its regular monthly loan payments and six months of deferral before having to start to pay back all the debt accrued during the pandemic.

Additionally, the mall asked for the go-ahead from its loan servicer to use money it had set aside for tenant improvements to instead be reallocated to fund Crossgates’ general operating expenses.

Securities and Exchange Commission filings show Crossgates started regular monthly payments again in October 2020.

Collectively, the mall missed over $10 million in principal and interest payments during the pandemic on its $260.7 million in loans, for which its mortgage payment is about $1.68 million per month.

In tax year 2020, the seven Crossgates properties associated with the assessment suit paid $6.97 million in taxes to Guilderland schools, its library, and the town’s coffers, as well as to Albany County. Were the mall to win its tax suit against the town, that number could be cut in half.

A November 2020 research note from Morningstar stated that Pyramid had 20 CMBS loans on 12 of its properties; the mortgages had a cumulative total of more than $1.9 billion. At the start of the new year, Morningstar observed that Pyramid “continues to struggle through the pandemic.” Pyramid was delinquent on eight of 18 loans monitored by credit-rating agency DBRS Morning, as of early March.

According to Morningstar in January, the Pyramid-sponsored mall loans had debt service coverage ratios (DSCR) below 1.5. 

DSCR is a measurement of a company’s ability to pay its current debt obligations. A debt service coverage ratio of less than 1 means 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 Mall in March of last year had a DSCR of 1.28; in June, that number dropped to .51; in September, the mall had a debt service coverage ratio of .5; and by December 2020, its DSCR had gone back up, to .75.

Another metric highlighted by Morningstar was loan-to-value ratio (LTV), which is a number that determines whether or not a borrower can qualify for a CMBS loan. 

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 more likely the loan is able to sustain a decline in property value.

When the three mortgage-backed Crossgates loans were issued, they had a collective outstanding debt of $299.2 million while the mall itself was appraised for $470 million — a loan-to-value ratio of 63.66 percent. 

But Crossgates was reappraised over the summer and is now valued at $281 million — a loan-to-value ratio of 92 percent. 

The higher LTV could hurt the mall if it needs to refinance its loans.

The total payout of Crossgates’ loans are due by May 2022, at which point the mall would have to pony up about $250 million.