About $4 billion in value was erased from 118 retail-anchored properties with commercial mortgage-backed securities debt after reappraisals triggered by payment delinquencies, defaults or foreclosures, according to data compiled by Bloomberg.
That average drop — which reflects the change in value since the debt was originated years ago — may underestimate losses when the properties come up for sale because so much retail real estate is in distress. And few buyers are willing to take risks on aging shopping centers as e-commerce continues to grab market share.
“It’s an eye-popping decline,” Gwen Roush, an analyst with DBRS Morningstar rating service who tracks commercial real estate, said in an interview. “When we’re forecasting a loss on these malls, we’re even further haircutting that value.”
The biggest owners, such as Simon Property Group Inc., Brookfield Asset Management Inc. and Starwood Capital Group, have started to triage properties, walking away from money-losers while reinvesting in viable locations.
Hard-hit centers were already decimated by department store bankruptcies and high vacancy rates, before Covid-19 accelerated Americans’ taste for online shopping. Vaccines and herd immunity are unlikely to lure visitors back to deserted gallerias perfumed with Cinnabon bakery treats.
Only about half of the 1,100 U.S. indoor malls have a good chance of survival, according to Floris van Dijkum, a real estate analyst with Compass Point Research & Trading. The strong will get stronger while the weakest face abandonment, he said.
“There’s a huge bifurcation between good and bad quality,” van Dijkum said. “By value, 80% is in the top 300 malls.”
Simon, the country’s largest mall owner, is working with loan managers to restructure debt on underperforming centers or hand back the keys.
“Hope to make deals in some,” Chief Executive Officer David Simon said on the company’s latest earnings call. “If not, then they will no longer be part of our portfolio and we wish that new owner the best of luck.”
OwnerShopping Center2020 AppraisalDecreaseKushner Cos.229 W. 43rd St.$92.5 million-$377.5 millionCBL & Associates PropertiesTriangle Town Center$27.7 million-$257.3 millionSimon Property GroupTown Center at Cobb$130.4 million-$191.6 millionPyramid Management GroupPoughkeepsie Galleria$68.6 million-$168.5 millionSimon Property GroupSquare One Mall$50.5 million-$150.5 millionSource: Bloomberg CMBS data
Outside Atlanta, Simon’s Town Center at Cobb, once appraised at $322 million, received no bids at a courthouse foreclosure auction in February, according to a local news report. The company’s Montgomery Mall, near Philadelphia, was appraised at $61 million last year, a 69% drop from its 2014 value.