The bond-funded American Dream megamall project, which has yet to fully open following years of setbacks, now encounters new headwinds from COVID-19, which has shut down what little of the mall was open with no timetable for reopening, which in turn caused many investors to flee.

"The American Dream is a nightmare," said Dan Berger, senior market strategist at Refinitiv’s Municipal Market Data. “Investors, already concerned about the American Dream project, became more anxious about these bonds with the onset of the global pandemic.

The large retail and entertainment property in East Rutherford, New Jersey, has been sidelined since March 17 due to the pandemic, halting what little momentum it had, just five months after the long-awaited venue was partially opened in late October. Unknowns about when the 3 million square-foot complex will reopen and whether consumers will embrace malls — if there is no treatment or vaccine to prevent the coronavirus — cast doubts for bondholders, who were banking on the project’s success.
Berger said long-term concerns about the future of mall traffic after the virus is weighing negatively on American Dream debt. Bonds maturing in 2050, with spreads 500 basis points above the triple-A scale traded in late April, he said. Before that, on March 4, a $14.5 million block of American Dream bonds maturing in 2037 traded at a spread of 277 bps, according to Berger. On March 18, one day after the mall’s closing, American Dream 2050 bonds traded at spreads of 465.

"These bonds are priced at junk-level," Berger said. “It is not even trading that close to investment grade."

New Jersey is slated to enter stage two of its reopening process on June 15, which will include nonessential retail stores, but not malls. Gov. Phil Murphy has not indicated when malls will be allowed to reopen.

“The sheer size of the facility requires a significant tourist draw that is likely to be impaired for some time, particularly with regard to international travel,” said Lisa Washburn, managing director at Municipal Market Analytics. “I think it will be quite some time, if ever, before many consumers return to pre-pandemic activities that require congregating indoors with large groups of strangers.”

The stalled American Dream development, which was originally called Xanadu, broke ground in 2004 before encountering a series of delays tied to the 2008 credit crisis.

The project was eventually completed 15 years later, assisted by a $1.1 billion tax-exempt revenue bond transaction in June 2017 led by Goldman Sachs that is backed by a payment in lieu of taxes agreement between developer, Triple Five Group, and the borough of East Rutherford. The unrated deal featured $800 million in limited obligation revenue bonds and $287 million of grant revenue bonds, supported by anticipated sales tax revenue.

The bond sale featured the Wisconsin-based Public Finance Authority acting as a conduit issuer for New Jersey Sports & Exposition Authority, which operates the Meadowlands District where the megamall is located. Triple Five secured $1.6 billion in private construction loans from JPMorgan prior to the deal.

American Dream was initially planning for the development to be comprised of 55% entertainment attractions and 45% retail. Triple Five is now eyeing roughly 70% entertainment and 30% retail, according to Washburn.

“I suspect the shift to focus more on entertainment was driven by the challenges in the retail sector, which have since accelerated, rather than a demand-supported strategic business decision,” Washburn said.

The pandemic struck just before American Dream was set to debut its Dreamworks Water Park and some of its planned 250 retail stores. The megamall’s partial opening late last year included Nickelodeon Universe, which is being billed as the Western Hemisphere’s largest indoor theme park, an indoor ski slope and an ice rink.

Another red flag about prospects for the mall's success, she said, is Triple Five recently missed two loan payments for the Mall of America in Minnesota, which it also owns. Triple Five was forced to put up Mall of America as collateral to take out a loan for American Dream last year.

“The developer’s financial challenges are likely to limit the amount of time and resources it can invest in the project while waiting to see if its new gamble on entertainment will pan out,” Washburn said.

The Triple Five Group press office did not immediately respond for comment.