CMBS Cash Flow Crunch Looms As 'Retail' Mall Vacancies Set To Surge

Tyler Durden's picture


In the same way as any and every risk-asset in the world, the price of yield-providing CMBS (commercial mortgage backed securities) have risen to post-crisis highs in the last few months. These are some of the epicentric deals from the crisis that now trade close to par once again. However, the last month or so has not seen CMBS prices push higher with stocks and it appears, as the FT notes, that the reason is becoming clear in the post-holiday-shopping period.

CMBX prices flat since 2013 began...


CMBS cash-flow streams are set to drop considerably as up to 15 per cent of the country’s suburban retail centres forecast to close over the next five years in the face of online competition.

The US’s more than 1,300 regional malls, defined as centres larger than 450,000 sq. ft., are being threatened by the boom in internet shopping and tougher competition and as they add, the prospects for second-tier malls are dimming.

Retail is regarded as an especially risky component of CMBS as a mall can go downhill if an important tenant shuts its store because other tenants are usually able to renegotiate their leases if a traffic-driving anchor tenant leaves. That can have severe consequences for CMBS exposed to the mortgage on the property.


FT: Online sales threat to American malls

By Stephen Foley and Barney Jopson in New York

Credit market investors are falling out of love with US shopping malls as up to 15 per cent of the country’s suburban retail centres are forecast to close over the next five years in the face of online competition.


The proportion of retail properties being put into commercial mortgage-backed securities (CMBS) deals has slumped in the past three years because of concerns about the sector.


The US’s more than 1,300 regional malls, defined as centres larger than 450,000 square feet, are being threatened by the boom in internet shopping and tougher competition.


“I think 200 are going out of business,” said Gerry Mason, executive managing director at property group Savills. “We’re 15-20 per cent overbuilt. There are just too many stores.”


The future of megamalls, which include cinemas, bowling alleys and restaurants designed to lure consumers, appear safe but the prospects for second-tier malls are dimming.


Traders are watching the health of stores such as Sears and JC Penney, where sales are falling, and announcements from retailers such as bookseller Barnes & Noble last week, which said it would shut a third of its outlets over the next decade .


CMBS are bonds backed by a pool of mortgages on commercial property, ranging from office towers to apartment blocks. Retail property accounted for 56 per cent of the pools coming to market in 2010, according to RBS, but that fell to 42 per cent in the second half of 2011 and dropped to 36 per cent last year. In CMBS deals so far this year, the average is down to 30 per cent.


“Investors expressed concern about retail exposure in the long term,” said Richard Hill, CMBS strategist at RBS. Analysts say the market appears to be dividing between mega and second-tier malls, with mortgages on megamalls increasingly being securitised separately in single-property CMBS.


Simon Property Group, the largest US mall owner, reported strong earnings on Monday, boosted by higher rents and sales at its high-end malls.


Retail is regarded as an ­especially risky component of CMBS because a mall can go downhill if an important tenant shuts its store. Other tenants are usually able to renegotiate their leases if a traffic-driving anchor tenant leaves. That can have severe consequences for CMBS exposed to the mortgage on the property.


Ecommerce accounts for roughly $1 in every $10 spent by US shoppers and its market share continues to rise. In last year’s end-of-year shopping season, online sales increased 14 per cent while sales overall were up by just 3 per cent, according to ComScore and the National Retail Federation.


Ecommerce has already contributed to the demise of Circuit City, an electronics chain, and Borders, a bookstore. Sears and JC Penney, who often serve as mall anchor tenants have announced store closures in the past 18 months, as have Gap, the fashion chain, and Best Buy, another electronics chain.

(h/t Manal Mehta)

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Mon, 02/04/2013 - 19:47 | 3214817 Kastorsky
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Mon, 02/04/2013 - 19:56 | 3214851 TruthInSunshine
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 "An empty or nearly empty Sears/Kmart, Aeropostale, Radio Shack, Rite-Aid, Dick's Sporting Goods, Best Buy, JC Penney, Bed Bath & Beyond, Target, Lowe's, Macy's, American Eagle Outfitters, Outback Steakhouse, etc. etc. etc. on every block, and a Kentucky Fried Chicken Kidney in every pot!"


-- Barack Delano Robamney

Mon, 02/04/2013 - 20:16 | 3214918 AlaricBalth
AlaricBalth's picture

Retail malls. The cathedrals of conspicuous consumption for the Baby Boom generation.

Mon, 02/04/2013 - 20:50 | 3215002 Freddie
Freddie's picture

Lots of Baby Boomers voted for Hope & Change.  How is that working out for you?

Mon, 02/04/2013 - 21:13 | 3215069 trav777
trav777's picture

nah; they voted with their programming.

a LOT of people feel the need to marshal "evidence" to prove a negative, to rebut a label they were slapped with before their PARENTS were even born.

Back on topic, nothing will destroy a mall faster than diversity

Mon, 02/04/2013 - 23:05 | 3215319 Bicycle Repairman
Bicycle Repairman's picture

Two words: Internet tax.

Mon, 02/04/2013 - 23:27 | 3215366 Temporalist
Temporalist's picture

The price of gas keeps people from going to the mall as frequently and ebt cards keep people too fat to want to leave the couch and walk around anyway.  I mean there are 24hour fucking shopping channels.  24 fucking hours a fucking day!  Who the?!?!?!?!  What the?!?!?!?!

Now if hover-rounds were able to take people from home to the mall and back...

There is a stimulus package they haven't enacted yet; hover-round lanes on major highways!  Think of all the jobs that will create!

Mon, 02/04/2013 - 21:22 | 3215081 AlaricBalth
AlaricBalth's picture

Come on Freddie. Give me more credit than that. Obama carried only 39% of the white boomers. It was the Millennials that supported him overwhelmingly. Besides I don't adhere to the left/right paradigm. I actually wrote in, "not interested".

Mon, 02/04/2013 - 19:56 | 3214854 FL_Conservative
FL_Conservative's picture

Guess it's time to sell to Uncle Bennie, since his budget is $45B/month.

Mon, 02/04/2013 - 23:54 | 3215443 bobthehorse
bobthehorse's picture

I've got your empty retail vacancies.

I've got them haning between my legs.

Fuck Ben Bernanke.

Mon, 02/04/2013 - 19:47 | 3214818 MrX
MrX's picture

a nightmare you had once. the times they aren't a changin.....

Mon, 02/04/2013 - 19:51 | 3214833 Muppet Pimp
Muppet Pimp's picture

Newsflash: Malls (the interior corridor variety) have been dead for years now.  Barring a few showcase properties, the ones here have empty department stores, middle easter owned dollar stores and tattoo shops

Mon, 02/04/2013 - 21:24 | 3215100 Handful of Dust
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Owner of Highland Mall (Austin) files for bankruptcy



Austin's struggling Highland Mall, derided as a retail "ghost town" by one of its anchor tenants last year, now faces a new challenge: bankruptcy.

The Chapter 11 filing Wednesday in U.S. Bankruptcy Court in Austin




Hill Country Galleria (Austin, Tx) Sold at Bankruptcy Auction for $75M REIT Management & Research Picks Up Austin Lifestyle Center for Fraction of Development Cost$75M/118117 Walk thru the malls and you see mainly low end stores these days and little booths in the aisles run mainly by foreigners sell cheap stuff and services---cell phone subscriptions, cheap jewelry, eye brow removal, etc....
Mon, 02/04/2013 - 19:51 | 3214837 Piranhanoia
Piranhanoia's picture

American malls are a threat to online retailing too.  The wife drags you to malls where you have choices you don't want and don't get when you aren't looking for them online.

Mon, 02/04/2013 - 19:52 | 3214841 disabledvet
disabledvet's picture

The tractor trailer combination is what's putting in "the end." Big box stores better start discounting...or sourcing local. A farmer with a 53 foot reefer and natural gas for fuel is going to put a lot on industries out of business. "the days of a fixed real estate location" are numbered.

Mon, 02/04/2013 - 19:52 | 3214844 fonzannoon
fonzannoon's picture

Near where i love there is a place called "the mall at the source".  It died. First fortunoff went. Then Circuit city. Then it was just a ghost town. So what did they do? They closed it down. Then, 500 yards away, they spent a ton of money to open up a huge strip mall, with all the same stores. It probably created a bunch of jobs, spent a lot of money that no one had, and it's going to drop dead again. It's amazing.

Mon, 02/04/2013 - 20:00 | 3214872 TotalCarp
TotalCarp's picture

I dont have a good feel for how high is the debt load on these commercial properties. Does that vary by region at all? Until that is answered its hard to say how rapid the decline will be.

US consumer will retrench in horror once husseinocare will kick in and lower middle class families will have to hand over 20k/year to the state.

Tue, 02/05/2013 - 00:22 | 3215490 Real Estate Geek
Real Estate Geek's picture

On paper, major lenders’ commercial underwriting standards are not unduly loose, but they’re not taking into account the fragility of the current economy.  And ZIRP’s a big part of the problem. The low returns have lowered cap rates which, of course, increases the property’s “value.”  But when the gods of the copybook headings return they’re bringing higher rates, and the direct and indirect effects of that are going to hammer a lot of loan portfolios.

Mon, 02/04/2013 - 21:30 | 3215123 Stoploss
Stoploss's picture

Third time's the charm, cause the third time it really will be different!






Mon, 02/04/2013 - 19:53 | 3214845 goldenbuddha454
goldenbuddha454's picture

I came to a realization this weekend upon visiting a fleamarket of the highway in Florida.  All that endless crap people are trying to get rid of is closeout crap from the retail stores that all went under and vacated the malls.  The fleamarket may actually become the 'new mall' of the future as business tries to evade high priced mall leases that will be sure to become nothing more than dead space being that so many people buy online nowadays anyway.  Malls are done, right along with Fiat currency.

Mon, 02/04/2013 - 21:16 | 3215078 trav777
trav777's picture

here in the Imperial Capital, malls only get done when they build transit conduits enabling MS13 and diversity to travel to them.

Mon, 02/04/2013 - 21:38 | 3215144 Muppet Pimp
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Glad to see the real trav back around...You were missed sir

Mon, 02/04/2013 - 21:38 | 3215146 fishwharf
fishwharf's picture

The town I live in has a gigantic Westfield mall that I can't stand going to, and a huge flea market that I go to nearly every weekend.  There are hundreds of garage sale type sellers, as well as regular vendors with inexpensive items.  There is a huge produce market with lots of high quality locally grown produce that's usually much less expensive than supermarkets.  I never know what I'm going to find, and last weekend I met a very interesting fellow selling nautical artifacts.  And if that's not enough, they have great tacos for $1.50.  I would not be bothered if every mall in America closed.

Mon, 02/04/2013 - 20:03 | 3214880 chump666
chump666's picture

CMBSs crunch returns?  This sounds so 2008'ish. 

Mon, 02/04/2013 - 20:12 | 3214905 bigkahuna
bigkahuna's picture

internet kill switch!!!!  Thats what its really for.

Mon, 02/04/2013 - 20:13 | 3214909 q99x2
q99x2's picture

Dude what did you expect. Robots don't go shopping.

Mon, 02/04/2013 - 20:17 | 3214921 1C3-N1N3
1C3-N1N3's picture

Failing mall today, thriving FEMA camp tomorrow.

Mon, 02/04/2013 - 20:25 | 3214936 Global Hunter
Global Hunter's picture

sad thing is if they put a bunch of retail outlets in FEMA camps and let the inmates spend some credits for their labour in the camp walmart and MacD's, most of the camp inmates may be quite content living out their days in such a scenario.

Mon, 02/04/2013 - 20:32 | 3214955 Oldballplayer
Oldballplayer's picture

That's a great thought. I will live out my life in the storeroom of a fucking RadioShack.

Mon, 02/04/2013 - 20:26 | 3214930 ebworthen
ebworthen's picture

The Mall of the 1970's and 1980's is dead.

They are going to be novelites, like Drive-In theaters.

WalMart and Target are certainly to blame, but also chains like Kroger adding on clothing/hardware/electronics sections that make going to J.C. Penny or Best Buy not worth the trip.  Sam's Club or Costco bite into it too, but I'll be damned if I'm going to pay a store a fee to shop there (or scan and bag my purchases for them).

Local Dillard's in the nearby Mall shutting down, and the Mall itself reminds of Montgomery Ward or Borders Books in their last days.  Don't know how the REITs have survived other than FED QE and speculation/leverage.

Mon, 02/04/2013 - 20:47 | 3214994 Bunga Bunga
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Or blame Craigslist or Ebay where you get the better stuff for a fraction of the price. Sometimes I buy 30 year old equipment from the good old days "made in USA" or "made in Japan", which lasts much longer than the new stuff "made in China".

Tue, 02/05/2013 - 01:33 | 3215586 jonjon831983
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Slight adjustment: "new stuff" that was approved by greedy corporate vampires looking out for their bottom line and bonuses by inducing Chinese manufacturers to mass produce crap on razor thin margins.

Mon, 02/04/2013 - 21:12 | 3215015 Handful of Dust
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Many merchants (like my neighbor) hold on until after the Christmas... then declare bankruptcy. They try a last ditch effort to survive on holiday sales.....many (like my neighbor) go under. Retail sales "pathetic" he told me. "Mostly teenagers walking around...not buying anything," he said. 

Now he worries --- should he buy another iPhone (iPhone6) for his kids...or pay his mortgage?


What a dilemma.

Mon, 02/04/2013 - 21:15 | 3215077 yogibear
yogibear's picture

Way too many malls and banks that flourished on pumped up housing prices and easy credit the last 30 years.

Mon, 02/04/2013 - 22:04 | 3215209 Seasmoke
Seasmoke's picture

if they can just hang in there , until Obama kills the internet, they will be just fine

Tue, 02/05/2013 - 00:05 | 3215461 hooligan2009
hooligan2009's picture

simply represents a switch from malls to internet warehouses...without the fancy shelves, lighting and floor walkers/shop girls whose value add was close to zero anyway

Mon, 02/04/2013 - 23:41 | 3215415 hairball48
hairball48's picture

Never fear. Malls will live on. Flea Markets are great but when they become too popular, you can bet your ass state and local pols will find ways to tax or regulate the flea markets out of business. Like zombie banks, we'll have zombie malls.

Tue, 02/05/2013 - 00:10 | 3215472 fxrxexexdxoxmx
fxrxexexdxoxmx's picture

You need extra cash to buy things you do not need. Food, shelter, transportation and clothing have risen due to inflation, who in the hell has money to spend on wants?

Tue, 02/05/2013 - 00:40 | 3215512 Northern Lights
Northern Lights's picture

It's no different here up in Canada.

People go to the mall for the sake of going to the mall.  Mall zombies.  Exactly like in the movie "Dawn of the Dead". They don't know why they go, they only know that they need to be there.

No one buys but when they do, it's all put on plastic.

There's an underground path below the office building I work in. Slowly every second store is closing. If it re-opens, it's some cheap store selling chotchka's only a woman would buy. Cheap shit. Plastic necklaces, beads, rings that will turn your finger green in a week. Incredibly, women love this shit.  There's usually at least 2 females wandering around inside buying this crap.  To them shopping is a "vocation".

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