The continuing struggles of bonds issued 18 years ago to finance a shopping center in the far reaches of Chicago's suburbs underscore the risks in the unrated and land-secured debt sectors.
Sales tax revenue bonds like the $8.35 million deal Yorkville, Illinois, issued in 2007 for the Kendall Marketplace shopping center are among the riskier credits in the municipal market. Munis are seeing fewer investment grade and insured impairments lately, according to Municipal Market Analytics, but the Yorkville bonds are unrated.
"We tend to have impairments clustered by sector and rating, and that (shopping center) falls into one of the riskiest sectors in the marketplace: land secured (debt)," said Lisa Washburn, managing director at MMA, which mentioned Kendall Marketplace in a recent default trends report. "If you look at our data, in terms of the number of impairments, it's 145 of the 715 active impairments."
The Yorkville bonds, which have a final 2027 maturity, first became impaired and defaulted in January 2015, according to MMA's default trends report.
The bonds'
Yorkville Economic Development Director Lynn Dubajic did not respond to phone calls or emails requesting comment.
City Administrator Bart Olson, responding on behalf of the mayor and City Council members, declined to say why Yorkville defaulted on the bonds, how many vacancies the shopping center currently has or how its sales tax revenues have performed in recent years.
"The city has continued to fulfill its obligations under the trust indenture and has promptly turned over all pledged sales taxes revenues and business district tax revenues to the trustees as they are received," he said.
Yorkville is a city of nearly 26,000 about 52 miles southwest of Chicago. It had a median household income of $108,775 in 2023, according to
The project's original anchor stores, Target, Home Depot and Kohl's, remain in business there today, as do the PetSmart and Marshalls stores described in the 2007 limited offering memorandum.
But a segment of the property, shown on a map in the LOM as hosting planned book, electronics and office supply stores, was never developed, according to recent Google Maps Street View photos. Neither were a raft of retail plots on the east side of the property. And the Street View tour shows several retail vacancies.
The retail development, which opened into the teeth of the Great Recession, has had a bumpy ride.
Greenwood Global bought the property out of foreclosure in 2015, according
Its CEO, Alex Berman, spoke of "transforming this property into a premier shopping and eating experience" and suggested in a
The Series 2007 sales tax revenue bonds are secured solely by the pledged sales tax revenue generated in the business district where the shopping center is located, as well as the funds held under the indenture, including the debt service reserve fund, and investment income, according
A small senior living development, with 20 single-family lots, is now planned on 8.29 vacant acres on the north side of the property, according to public
"That developer is in (the) final stages of getting the final (plan) approved by us," Olson said.
Yorkville had big ambitions for Kendall Marketplace, the 2007
"This was all predicated on the development of a particular district," Washburn said. "So those tend to be some of the riskiest bonds in the municipal market. They tend to be not rated and not insured because of the risk."
The 2007 development agreement required the city to remit 50% of the sales tax and 100% of the business district tax generated in the district to an escrow agent for the payment of debt.
Whether a given shopping center will sink or swim "really depends on the property, and when was it constructed," Washburn said. "It really is project-specific. It's location, the type of project, and what's happening in that geographic area."
As of April 30, 2024, the outstanding principal on the Kendall Marketplace sales tax bonds totaled $4.48 million, according to the city's 2024
Those unrated bonds, of which $7.58 million were issued in 2007, are also in default, with partial payments being made to bondholders, according
The city had $31.89 million of total debt outstanding then, $28.6 million of that from GO and alternate revenue source bonds and $2.6 million from developer commitments.
The city's unrestricted net position for business-type activities declined by $6.5 million during the fiscal year after it issued the
Yorkville went on to issue two more series of alternate revenue source bonds and two more series of GO bonds in 2025, according to
The city's GO debt is rated AA-plus by Fitch Ratings and AA by S&P Global Ratings. The outlook is stable.
The pandemic was a challenging time for the retail sector. Since then, some commercial real estate owners have looked to reimagine malls and shopping centers that have struggled to recover.
But U.S. shopping centers face a more challenging retail operating environment in 2025, with a softening market and tariffs that are likely to dent consumer demand, according to Cushman & Wakefield, a Chicago-based commercial real estate services company.
"Demand in the first quarter turned negative, with net absorption dropping 5.9 million square feet, marking the weakest quarter since the onset of the pandemic," the firm noted in its
Still, officials in cities like Yorkville may feel they can't afford to let a shopping center founder when it supports their tax base.
"If that's your economic driver, a large part of your tax base, it makes sense to look at, what's the next generation of what that land can be used for," MMA's Washburn said.
