MALL OWNERS FACING ULTIMATUMS

Lenders have foreclosed on the Saks Fifth Avenue store that anchors Miami’s Dadeland Mall after the retailer has left its April and subsequent mortgage bills unpaid.
The $846-million note is secured not only by the Florida store but also by 24 Lord & Taylor stores around the U.S., meaning the bondholders also could seize those stores as the foreclosure unfolds.
On 1 November, mall owners CBL & Associates and Pennsylvania Real Estate Investment Trust (PREIT) filed Chapter 11 bankruptcy. Between them, the two real estate trusts hold about 87 million square feet of real estate across the U.S.
Tennessee-based CBL owns 107 commercial properties in 26 states, including enclosed malls, strip malls, and outlet centers, according to company information.
The bankrupt JC Penney department store chain had been a major tenant.
PREIT owns malls in Maryland, Michigan, New Jersey, Pennsylvania, and Virginia.
The two trusts own what the industry calls B-class malls, which are located in middle-class areas, often away from metro centers, and generate fewer sales per square foot than more upscale sites.
Other mall owners may soon succumb to the same fate.
As the shutdown began last spring, lenders to mall owners around the country were compassionate, assuming retailers’ cash flows would return in the summer and property owners could resume timely mortgage payments.
However, the shutdown persisted, key retailers such as JC Penney and Lord & Taylor went bankrupt and closed stores, and now lenders’ patience has run out.
Many lenders are alarmed by the plunge in malls’ property values, which has dropped by as much as 75 percent, the Wall Street Journal reported on 28 October.
For example, owners of the Park Plaza Mall in Little Rock, AK, walked away from negotiations with mortgage holders last spring. The mall was valued at $142 million in 2011 but now has a sticker price of $33 million, according to Trepp, a real estate analysis firm.
Some mall owners hope to save their properties by converting them to warehouses, medical centers, or multi-use structures that combine apartments, stores, clinics, and gyms or yoga studios.
Only 15 percent of such conversions, however, have helped the owner recover cash flow and stave off foreclosure, analysts at Barclays reported in a research note.
TREND FORECAST: Again, we have long forecast the “Pall on the Malls.” Clearly, even when (and if) the COVID War ends and restrictions are lifted, as the “Greatest Depression” worsens and unemployment rises, more malls, large and small, will go bust.
And, as the data shows, plans to reconfigure them for other purposes have, and will be, economically negligible.