We have frequently noted the precarious state of the U.S. mall REITs (see "Myopic Markets & The Looming Mall REITs Massacre" and "Is CMBS The Next "Shoe To Drop"? GGP Sales Suggest Commercial Real Estate Crashing"), but the epic collapse of the Galleria at Pittsburgh Mills paints a uniquely horrific outlook for mall operators. The 1.1 million square foot mall, once valued at $190 million after being opened in 2005, sold at a foreclosure auction this morning for $100 (yes, not million...just $100). According to CBS Pittsburgh, the mall was purchased by its lender, Wells Fargo, which credit bid it's $143 million loan balance, which was originated in 2006, to acquire the property.
Pittsburgh Mills mall auctioned off for a hundred bucks. Bid by Wells Fargo which is holding 149 Mill. Debt on mall.— PAUL D. MARTINO (@PMARTKDKA) January 18, 2017
Like many malls around the country, Pittsburgh Mills has suffered the consequences of weak traffic amid tepid demand from the struggling U.S. consumer resulting in massive tenant losses. According to the Pittsburgh Tribune, the mall is only 55% occupied and was last appraised for $11 million back in August.
The value of the mall has been plummeting since it opened in July 2005. Once worth $190 million, it was appraised at $11 million in August.
The mall has lost a number of key tenants over the years, including a Sears Grand store. The mall's retail space is nearly half empty, with about 55 percent occupied.
Of course, New York Fed President Bill Dudley laid out a very compelling case for retailers yesterday if he can just convince American homeowners to commit the same mistakes they made back in 2006 by repeatedly withdrawing all of the equity in their homes to fund meaningless shopping sprees. So it's probably safe to keep buying those mall REITs...afterall those 3% dividend yields are amazing alternatives to Treasuries and you're basically taking the same risk...assuming you overlook the billions of property-level debt that ranks senior to your equity position.