Malls Owners Rush For The Exits As Mall-Backed CMBS Defaults Soar
Last week we wrote about the epic collapse of the Galleria Mall at Pittsburgh Mills which sold for $100 after once being appraised for $190 million shortly after being opened in 2005 (see "Pittsburgh Mall Once Worth $190 Million Sells For $100"). Unfortunately for mall owners, while the Pittsburgh Mills Galleria is an extreme example, crashing mall valuations are hardly an anomaly these days. In fact, just a few weeks ago Commercial Real Estate Direct wrote about the Foothills Mall in Tuscon, Arizona which was valued at $115mm in 2006 and backs a $75mm CMBS loan but recently appraised for just $18mm...or just a slight 75% loss for lenders.
As pointed out by the Wall Street Journal earlier today, mall CMBS defaults are up all across the country with liquidations up 11% YoY.Possibly also of interest:
And while we're frequently reminded of the stunning "Obama recovery" by the mainstream media, retailers seem to represent the one 'tiny segment' of the U.S. economy that failed to participate in that recovery as evidenced by the soaring delinquency rates of loans backing retail properties.In the period from January to November 2016, 314 loans secured by retail property were liquidated, up 11% from the same period a year earlier, according to data from Morningstar Credit Ratings.
“We’re seeing a boatload of these kinds of properties coming to market,” said James Hull, managing principal of Augusta, Ga.-based Hull Property Group, which purchased five malls from foreclosure sales in 2016. “There have been some draconian losses for the enclosed mall business.”
Despite a strengthening economy in 2016, the delinquency rate for loans backing retail property rose by 0.6 percentage point last year to 5.76%, according to Trepp LLC, a real-estate data service. Special servicers, which deal with troubled commercial mortgage securities, managed $3.1 billion worth of mall-backed loans last year, up from $2.9 billion in 2015, according to Trepp.
This year is off to a shaky start. Earlier this month, Sears said it would close 150 stores, and Macy’s gave more details of a plan to close 100 stores.
Limited Stores Co. said it plans to close all 250 stores and filed for chapter 11 bankruptcy protection last week.Meanwhile, as Barclays' U.S. REIT team points out, the key question for mall owners in 2017 isn't whether rent concessions will be granted to tenants, but rather, just how deep the cuts will have to be in order to maintain occupancy....MORE
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Simon Property Group is the most exposed of the REITs, 170 malls, 170 million square feet, twice the square footage of the next most exposed, General Growth (160 properties, 88 million square feet):