In what could be the largest default in El Paso County history, the owner of the Chapel Hills Mall in Colorado Springs has been hit with a pair of foreclosure notices totaling $37 million.
Chapel Hills, northeast of Academy and Briargate boulevards on the Springs' north side, is one of the city's two aging, enclosed malls along with The Citadel. Both have battled for years with newer and trendier retail centers and now face fierce competition to keep customers who increasingly prefer online shopping to brick-and-mortar stores.
Chapel Hills owner, Garrison Investment of New York, owes $35.2 million on a $43.3 million loan taken out in 2012, according to a foreclosure notice recorded Wednesday with the El Paso County Public Trustee's Office. A second notice shows Garrison owes $1.8 million on a $10 million loan from 2014.
Garrison representatives didn't respond to requests for comment Thursday. The foreclosures were brought by Capital One, National Association, a bank owned by the credit card giant.
It's unknown what the loans were used for, although the 2012 note was taken out a year before the opening of a 13-screen movie theater complex at the mall. Garrison had razed an old theater complex and a shuttered Kmart at the mall; it then built a state-of-the-art venue, which it's leasing to theater operator Carmike Cinemas.
While Garrison owns the Chapel Hills Mall, it doesn't own retail spaces that house anchor stores Sears, Macy's and Dillard's. Those properties weren't part of the foreclosure action.
The combined foreclosure notices appear to be the largest in county history, based on Gazette archives and the Public Trustee's data base. The biggest local foreclosure in recent years came in 2013, when the former owner of The Antlers hotel in Colorado Springs was served with a $36.4 million notice.
A foreclosure notice means a lender is seeking repayment of a debt. In a worst-case scenario, residential and commercial properties can be sold at a Public Trustee's auction to satisfy the debt; in Chapel Hills' case, a foreclosure auction is scheduled March 7. In most cases during a foreclosure action, shopping centers, office buildings and the like continue to operate normally, and Chapel Hills remains open for business.
The 1.2-million-square-foot Chapel Hills Mall opened in 1982, a decade after The Citadel northwest of Academy Boulevard and Platte Avenue. Besides Sears, Macy's and Dillard's, other Chapel Hills anchors include Burlington Coat Factory and Dick's Sporting Goods.
Previous owners of both malls have had financial woes.
Chicago-based General Growth Properties, which built Chapel Hills, was in bankruptcy before it sold the mall for $71.5 million to Garrison and a then-partner in 2011. Garrison is now Chapel Hills' sole owner.
The 1.1 million-square-foot Citadel was purchased in 2007 by an Arkansas group that four years later signed it over to a lender. A New York investment group bought The Citadel in December 2015 for a bargain-basement price of $20 million.
During the Great Recession, foreclosure notices mounted against owners of local office buildings, shopping centers, apartment complexes and other properties. Commercial foreclosures, however, dwindled over the last few years as the local and national economies improved.
While the reason for the Chapel Hills foreclosure wasn't known, it nevertheless put a spotlight on the problems faced by retail centers in the digital age.
Like other malls, Chapel Hills has seen retailers come and go. In May, Gordmans walked away from a store it had opened only last year. J.C. Penney closed a 20-year-old store at the mall in 2014; Borders Books & Music went out of business in 2011; and Old Navy moved that same year to a shopping center south of the mall.
Broker Mark Useman, a retail specialist with Colorado Springs Commercial, said it's unknown whether Chapel Hills' performance or other issues led to the foreclosure.
In general, malls rely on anchors to draw customers, who then shop at smaller stores and eat at food court restaurants. Some malls do well; Park Meadows in Douglas County remains attractive because of its variety of upscale stores, specialty retailers and restaurants, he said.
Yet, consumer habits have changed. Amazon and other online retailers siphon away customers who used to enjoy a leisurely stroll at the mall, Useman said. Other consumers no longer think of malls as convenient, and instead prefer to park in front of a store and walk right in, he said.
"A lot of it is the nature of retail right now," Useman said. "You have all these retailers that have brick-and-mortar stores, they're all considering the effects of the internet and people buying on the internet and where we're going. That's going to become even more of a bigger trend."
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