5.6.14: Malls Struggle When Anchors Leave

Shopping malls, already negatively impacted by internet retailing (see our 2.18.14 post “More Thoughts on the Future of Retail”), often find themselves in a serious downward spiral when anchor tenants close their doors. Anchor tenants are traditionally defined as national retail chains that lease large, multilevel spaces within the mall, typically at the ends of the mall. For older readers, these stores used to be called “department stores” as they had many “departments” within the store for men, women, kids, etc. Smaller retailers fill in the space between the anchors. Most malls have two to four anchor tenants. The anchor tenants provide steady shopper traffic for the smaller retailers.

Unfortunately, many anchor store chains are in trouble. J.C. Penney, the fifth-largest U.S. department store chain, recently announced its intention to close 33 stores (see our 1.15.14 post “JC Penney to Close 33 Stores”). Sears, the second-largest U.S. department store chain, has been losing money for years and expects to announce additional store closings shortly.

Nearly half of the 1,050 U.S. indoor and open-air malls have both of those struggling chains as anchor tenants, according to real-estate research firm Green Street Advisors. Of those malls, nearly a quarter are struggling with sales below $300 per square foot and vacancy rates above 20%, meaning they will have a hard time finding new tenants if current ones leave.

“Many of these malls are in CMBS,” commented Michael D. Sneden, Executive Vice President at ValueXpress. “Those loans are a high default risk, and the recovery on those loans are likely to be poor as the probability those properties will be re-leased is weak.”

 

 

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This entry was posted in CMBS, CMBS Conduit Loans, Commercial Real Estate Loans, Michael D. Sneden, News & Recent Closings, The Banker's Mortgage Conduit, Valuexpress and tagged , , , , , , . Bookmark the permalink.

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