What the CEO of America’s Largest Mall REIT, Simon Property Group, Just Said about the Brick & Mortar Meltdown and How it’s Trying to Manage It

“I prefer not to scare you at this point, okay. But it’s something that we’ve been able to withstand”: CEO David Simon.

Mall-landlord Simon Property Group – as it says, the largest real estate investment trust “in the world” by market capitalization, with 234 “destinations” for shopping, dining, entertainment, and mixed-use in America and elsewhere – has its finger deeply in American brick-and-mortar retail. And when its CEO talks about how the company is dealing with these malls, as e-commerce and too much debt are shrinking or toppling its tenants, such as Sears, it gets interesting.

On Friday, when the company reported fourth-quarter earnings, the “redevelopment” of its malls dominated the earnings call. It started out with these points in the press release:

  • In 2018, the company “delivered five significant property transformations and expansions; started construction on several redevelopments of former department store spaces.”
  • “Construction also continues on other significant redevelopment and expansion projects including The Shops at Riverside (Hackensack, NJ), Southdale Center (Edina (Minneapolis), MN), Northshore Mall (Peabody (Boston), MA)….”
  • “Construction also started on five significant redevelopment projects of former department store spaces at Broadway Square, Cape Cod Mall, Midland Park Mall, Ocean County Mall and Phipps Plaza.”

This topic dominated the earnings call because the brick-and-mortar meltdown is real, and retailers are closing stores and filing for bankruptcy in large numbers, and Simon has to work with them, and it has to manage the process and develop alternatives. Chairman and CEO David Simon even threw out a number: The company’s president is sitting on “his 200th unsecured creditors committee.” That’s how many bankruptcies and restructurings its tenants have gone through so far.

“There are points in time where it’s painful as we go through that with them,” David Simon said.

So here is how the largest mall landlord in America is dealing with the historic transformation of the retail industry, as explained by Mr. Simon during the earnings call (transcript via Seeking Alpha).

The first question on the topic was about the impact from the “repurposing” of the 25 Sears anchor stores, “like sales disruption or any kind of compensation you might have to give tenants while you’re working on the Sears space….”

Mr. Simon said essentially that Simon Property Group is big and diversified and can handle it, with only “48% of our business in the mall business,” down from 95% early on.

Many of the anchor stores at Simon Property Group’s malls have made the news with store closings. Sears is in bankruptcy. J.C. Penney may be heading that way. Neiman Marcus was subject to a leveraged buyout, precisely the process whose consequences are now pushing so many retailers into bankruptcy. Simon Property’s top anchors, in order of square footage (number of anchor stores):

  • Macy’s (117)
  • C. Penney (66)
  • Dillard’s (38)
  • Nordstrom (28)
  • What’s left of Sears Holdings (25)
  • Dick’s Sporting Goods (31)
  • Hudson’s Bay Company (16)
  • Belk (9)
  • Neiman Marcus (12)
  • Target (6)
  • Von Maur (6)

Mr. Simon:

“So, there’s always disruption in our industry. Department store spaces that we reclaim either through lease termination or acquisition, we think will be beneficial in the long run. There are down-times associated with that, and that’s all kind of manageable for a company like ours.”

“I do think on the retail front, the strong are getting stronger. But as you’ve seen by the numbers throughout the retail community, a rising tide doesn’t lift all retail boats.”

“There are some retailers out there that we’re nervous about. So far in the first quarter [this is just January], bankruptcies are trending lower than they were in 2017 and 2018. However, there are some rumored names out there. And [2019] could ultimately end up being similar to 2017 and 2018.”

“It’s a little bit out of our control when we get the space, and then to do a lease takes time…. So I mean, we have our work cut out. We are concerned about a few retailers. That should shake out in Q1. But I think the retailers that are investing in their product, in their store experience, in their branding were having decent results.”

“And obviously, as you know, we’ve had a number of retailers. The list is long, the landscape is littered of leveraged buyouts in our industry that we continue to sort through.”

“Leveraged buyouts were not ultimately beneficial, by and large, to our business. That’s kind of working its way out of the system.”

“Actually, I think we’ve never been busier on the alternative uses. We got a list in the 8-K that shows you what’s been approved, but that pales in comparison to the future activity.”

Here is the list from the 8-K filing:

Malls – Redevelopments The future Opening
Auburn Mall – Auburn, MA Redevelopment of the former Macy’s Home Store building with Reliant Medical Feb-2019
King of Prussia – King of Prussia (Philadelphia), PA Redevelopment Jun-2019
Burlington Mall – Burlington (Boston), MA Redevelopment of the former Sears TBA Sep-2019
Roosevelt Field – Garden City (New York), NY 163 room Residence Inn by Marriott Sep-2019
Columbia Center – Kennewick, WA Dick’s Sporting Goods Oct-2019
Orland Square – Orland Park, IL Redevelopment of the former Carson’s with Von Maur Nov-2019
Shops at Riverside, The – Hackensack (New York), NJ Redevelopment Dec-2019
Southdale Center – Edina (Minneapolis), MN Redevelopment of the former JCPenney building with Life Time Athletic and Life Time Sport/Work Dec-2019
Broadway Square – Tyler, TX Redevelopment of the former Sears building with retail and restaurants Jun-2020
Midland Park Mall – Midland, TX Redevelopment of the former Sears building with Dillard’s Jun-2020
Ocean County Mall – Toms River, NJ Redevelopment of the former Sears building with B.J.’s Restaurant & Brewhouse, LA Fitness, and other retailers Jun-2020
Cape Cod Mall – Hyannis, MA Redevelopment of the former Sears building and TBA with Target and other retailers Oct-2020
Dadeland Mall – Miami, FL Kendall West expansion including the addition of Apple and North Italia Oct-2020
Northshore Mall – Peabody, MA Redevelopment of the former Sears building and TBA with Life Time Athletic and Tesla Nov-2020
Phipps Plaza – Atlanta, GA Mixed use redevelopment of the former Belk building with Nobu Hotel and Restaurant, Life Time Athletic, Life Time Work, Office, and retail Aug-2021
Other Properties Redevelopment projects at various properties

“Three off the top of my head, that are massive mixed-use projects,” and that “aren’t even on our list [above],” Mr. Simon said:

  • “Northgate, which we have made a deal with the NHL franchise in Seattle, to do their corporate office as well as their practice facility and ice facilities for the general public.”
  • “We have Brea [Brea Mall, Orange County, California] which we have a reclaimed department store space that is in the process of permitting to do a massive amount of residential.
  • “Same thing with Stonebridge in [Pleasanton] California.”

“We obviously had a significant redevelopment. We’re feeling the pressure what we’re going through in our portfolio. So I would say by and large, when we’re looking at these spaces, they’re much more focused on changing the mix, adding additional elements… wellness, fitness, restaurants, residential, hotels – to kind of make it a standard statement of live, work, play, et cetera. So rarely is it just small shops.”

President and COO Rick Sokolov chimed in:

“To echo David’s point, this trend is accelerating. This time last year in our 8-K, we listed 11 projects for 2018 and beyond. This year, we have 19. And as David said, we have many more that are in the pipeline that are going to be coming in here. So we have a dedicated team.”

David Simon, in response to a question of how the troubled retailers, disappearing anchor stores, and redevelopment activity impact net operating income (NOI):

“The reality of how leasing works is that it takes time to lease space, right?… So if you look at the comp NOI growth, it’s being affected by some of these retailers that are going through this significant change. And we tend to work with them because at the end of the day, we tend to do it on a shorter-term basis, because we know, ultimately, we have to re-lease the space to someone.”

“When it comes to a good property and a good space with a good retailer, we’re making strides. But we’re working with some of the ones that are going through their various restructurings, and that ultimately has some impact, certainly, in the short run.”

And to another question about the impact on income, Mr. Simon said:

“The pressure that we have is that we are still dealing with a handful of retailers that, for whatever reason, have to go through their various restructurings. Because we can’t lease every space every minute, we tend to work with them…. I do think the cycle of the levered retailers is working its way through the system. And I think, at the end of the day, we just like cleanse. I mean, we’re suffering the pain. I mean, 2% comp NOI – we’re not ecstatic about it, but the primary factor in that is the retailers that are going through the various restructurings that we had.”

“I think, though, as that is cleansed, we’ll get to that number. But retailers are very focused on their cost and their operating model. Stores continue to be their best investment and their best return. Obviously, there’s a lot to talk about how profitable the Internet is and e-commerce and who’s bearing the brunt of the investment and all that…. The reality is, because of a lot of investments they’re making, they’re looking at every expense category. And we are having those discussions. They’re not easy.”

“We have a long list of retailers that have struggled. 80% to 90% of that list have been over-levered, so they couldn’t turn left or right. You just can’t have too much leverage in any industry and any business. When you run into an economic difficulty, or if you need to make investments, you just have nowhere to go.”

“If I read you the list [of those retailers], you would – it comforts me in one sense because we withstood this pretty successfully. On the other hand, I might scare you. So, I prefer not to scare you at this point, okay. But it’s something that we’ve been able to withstand.”

“The retailers that have a vision, whether they’re starting from the internet or just been around, and that have invested in their business and their product, we’re seeing pretty good results. Let’s look at the higher end luxury category; they don’t have a lot of internet sales, they invest unbelievably in the store experience, and then the product. And guess what, they had great results.”

“So, not overly complicated. The technology and some of the new concepts that we’ve seen out there that have been successful. Usually it’s a visionary leader. It’s a visionary group that’s dedicated to the business. They may have a little bit different angle on something that exist today. And they just execute it better than the next person.”

“I think the power of our industry is that we can withstand the ups and downs of a retailer – or retailers. There are points in time where it’s painful as we go through that with them. But ultimately, whether they turn it around or not, if we get the space back, historically, we’ve been able to lease it to a better person.

“Now I will give you a number that I probably shouldn’t, but we tend to be on most retailers’ unsecured creditors’ committees. We have somebody internally [Rick Sokolov, President and COO]…. He is currently on his 200th, 200th unsecured creditors’ committee. Now okay, yes, that might say, holy cow, that makes you a little nervous.”

“On the other hand, I mean, we did earn $4.3 billion…. So, I think more importantly, it speaks to the resilience of our industry, our product, and what the consumer really wants.”

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  62 comments for “What the CEO of America’s Largest Mall REIT, Simon Property Group, Just Said about the Brick & Mortar Meltdown and How it’s Trying to Manage It

  1. Feb 2, 2019 at 3:36 pm

    Redevelopment means RE? That should put some more downside in inflated home values. It all seems like an orderly transition. What are they doing in China, turning empty apartments into retail shops?

    • nick kelly
      Feb 5, 2019 at 12:52 pm

      Relevant bit in today’s Guardian (5th) about mall that cost over 4 mil pounds to build selling at auction for around 300K.

  2. FIRE! on FIRE!
    Feb 2, 2019 at 3:51 pm

    you know what i sell this. thorughout the 2008 crash and residential crash and contomitant ..derivates bankruptcy we saw littl e to ZERO commercial RE and follow up FIRE secotr crash (not counting AIG)

    my point is we have been hearing the crash of commercial real estate for YEEEEAARRSSS.

    clearly there are more assets there than …or suckers, than , than…you know mark to market value?

    what is the actual risk value of commercial real estate in los angeles? where are the REITs concentrated? la? or menlo utah??

    queens or nelson oklahoma? 9is there a nelson ok?? idunno)

    • Feb 2, 2019 at 4:36 pm

      If I understand your garbled English correctly, your assertion that “we saw littl e to ZERO commercial RE … crash” during the financial crisis is just hallucinatory. Here is the Green Street Commercial Property Price Index. I haven’t updated it in a few months, but it shows what happened to CRE during the Financial Crisis — namely a drop of about 40% — and banks took big losses on this stuff:

      The sub-sector of malls in CRE has already taken a big hit in 2018, even as other sector of CRE, such as industrial, are still hot.

      • Debt Wazoo
        Feb 2, 2019 at 7:30 pm

        > If I understand your garbled English correctly

        No, you didn’t. He was trying to explain that his second cousin’s recipe for gazpacho has been classified as a munition for export purposes.

        How could you have read it any differently?

        • yngso
          Feb 3, 2019 at 8:09 am

          Ok guys, about time to stop this. Did you noice the top of the graph, 2016-18? Just because Simon is doing fine doesn’t mean that the Retailcalypse ain’t happenin’. The many thousands who get laid off have to work 2 or 3 jobs doing…whatever…

      • Joe
        Feb 3, 2019 at 11:47 am

        actually the extend and pretend period of 2009-2012 was how banks got thru crash
        I routinely see anchor properties either get repurposed or sit for very long time 2-5 years
        one of our sears is now FITNESS center – surely this will close within 2 years
        stand alone kmart – empty for 2 years already and no prospects
        and these are in GOOD NEIGHBORHOODS
        Krogers closed grocery store due to $1 mil per month theft
        wallymart nbrhood store likely to close soon also
        then we’ll have REAL food deserts(even circle K closed due to theft)
        and that is JUST 1 major intersection

        • mr_dood
          Feb 4, 2019 at 11:48 am

          “Krogers closed grocery store due to $1 mil per month theft”

          There are only a few hundred thousand dollars in inventory at any given grocer. What did they do, steal the building? No grocery loses $1 mm per month to theft. Lot’s of grocers are lucky to sell 1 mm in one month. Most grocers profit between $50K-$150K per month net, before taxes.

      • Nala
        Feb 6, 2019 at 3:01 pm

        Judging by the naked eye, the current price looks very close to a Fibonacci extension level of 1.618, a known price reversal point?

    • nick kelly
      Feb 2, 2019 at 6:46 pm

      I guess we’ll know more about LA RE when we know more about the fate of the billion- dollar, Chinese Oceanwide multi-tower project, which has
      suddenly halted work late in the project, due to ‘refinancing’ needs.

    • Jim Shea
      Feb 2, 2019 at 7:23 pm

      Say that again in English.

    • GuiriCateto
      Feb 2, 2019 at 11:25 pm

      I speak your language 9is there a nelson ok?? It says :

      Everything above 2003 prices is profit somewhere. When prices dip but to above 2003 levels it means mainly that transactions have stopped, that the fewer still taking place are at this lower level. That explains lbos used as wrecking tools for businesses that were not strong enough for meaner post 2008, their real estate was being eyed up using past reputation to leverage access to the firm.

      OTOH prices could down now and stay down, those caught long in higher prices would pay some. OTOH when you shout fire, people throw their cash on to burn, so I think they don’t like their money anymore either. Maybe this is the American way.

      So had you.

  3. GIT SUM!
    Feb 2, 2019 at 3:55 pm

    i want to know, within 2-3 standards of deviation (that is not unreasonable!)

    the entire value and complexity of the fire sector right now compared to sept 2008

  4. Michael Gorback
    Feb 2, 2019 at 4:25 pm

    You know what you can’t buy online? A good meal at a restaurant. I’d convert these empty malls into food malls.

    Baybrook Mall near me added a whole segment that’s just restaurants and a movie theater (that serves food and drinks). On weekends you can’t get near the place.

    I don’t know if these large department stores could be converted to apartments or condos but if so, you could convert an entire indoor mall into a “village” with restaurants, bars, pharmacies, grocery stores, gas stations, etc.

    • Bijo
      Feb 2, 2019 at 4:46 pm

      You definitely can order a good meal and get it to your place by 20 min.
      You doesn’t need to drive to the mall for that

    • RepubAnon
      Feb 2, 2019 at 5:11 pm

      Mixed commercial and condos seems to be the next big thing – especially if it is near light rail.

      Makes sense to a point – a walkable neighborhood, with convenient retail outlets selling stuff that you don’t want to order on-line… if they don’t flood the market, it could work.

      • GuiriCateto
        Feb 2, 2019 at 5:41 pm

        Reeboksed villages and small towns?

    • ArtV
      Feb 2, 2019 at 8:13 pm

      Michael G., that’s the buzz about these redevelopments now: “Suburban Town Centers” is the concept one reit is hinging its redevelopment plans on. The anchors are being repurposed, leased to movie theaters, fitness centers, restaurants and even office space.

      • char
        Feb 2, 2019 at 8:39 pm

        Repurposed sounds to positive, downcycled is more truthful .There is a mortgage to pay and they pay rent

        • yngso
          Feb 3, 2019 at 8:17 am

          Yup, Simon is pickin’ up the pieces for cheap. Repurposing also means downsizing total sq ft and ginormous job losses.

        • Paulo
          Feb 3, 2019 at 1:19 pm

          In our local city the major mall still has an anchor grocery store and a few outlets, but mostly has been repurposed and even expanded for boat and rv storage. It has a huge storage footprint. I suppose all the new arrivals living in condos and small-lot homes need a place to store their toys.

    • char
      Feb 2, 2019 at 8:34 pm

      Rent and fire code are the big reasons why you can’t change a mall into a food mall. Another problem is that restaurants have a lot less, and different, foot traffic and malls live of the multiplier effect of foot traffic.

      A mall has restaurants so you can eat so you can stay longer in the mall, not because they pay rent. Movie theater is loft space used to extend openings hours and help restaurants with customers. Bars are there to create drunk people, malls don’t like drunk people.

      You probably drove past a pharmacy, gas station and grocery store to get to the mall. They don’t pull people to the mall. They are purely reliable but cheap rent payers. Grocery stores have the advantage that they use a lot of space so they will pay a lot of rent even if it is low per square foot and they are their own pull is they don’t care if the mall is a ghost town. Adding a supermarket to a mall makes it a lot less risky to develop.

      • nick kelly
        Feb 2, 2019 at 10:02 pm

        Plumbing is a major issue for most of these conversion ideas.

        Malls are very cheap to build compared to housing.
        The typical outlet pre-lease has three walls, no windows, concrete flooring. No kitchen or bathroom. Yet it may command a rent substantially higher than a condo costing much more per square foot to build. In the heyday of mall construction these two made them irresistible to capital.

        A restaurant is going to need plumbing and venting but the first needs pre-plumbing or jackhammering.

        Plumbing is an even larger problem for conversion to apartments.
        Unless the idea is communal living, with shared facilities it’s probably not economically feasible.

        There are a lot of issues with malls but number one is
        that there are too many. Per person the US and Canada have four times the retail space of Western Europe.

        • roddy6667
          Feb 2, 2019 at 11:01 pm

          I was reading the comments to see if anybody mentioned the overbuilding of American retail space. This the elephant in the room that the article never mentions. And Simon is building more space? Do they even understand the biggest problem they have is the overbuilding? Why are they avoiding dealing with that?

        • Feb 3, 2019 at 1:03 am

          They’re only building A-malls. High-end stuff. B and C malls are dying. C malls turn into zombies. There is a cycle.

          But actually what Simon is mostly doing is redeveloping malls they already own — that entire list in the article is redevelopments of malls they own, or partially own, and much of that redevelopment is away from retail to other activities, such as health care and restaurants (services).

        • MC01
          Feb 3, 2019 at 4:05 am

          I have heard this mantra about retail space for decades now.

          Have you ever been to Milan, Italy? The city center is packed tight with high end stores. Fair enough.
          But the city is ringed with malls, and there are more under construction, including a €1.5 billion high end development by Paris-based mall specialist Unibail-Rodamco-Westfield which keeps on running into hurdles.
          Repeat that from Milan to Venice: the whole place is massively overmalled, so much even local media are fretting about it.
          Oh, yes, and Amazon just opened their fourth logistic center in Italy…

          But if you think this is just a case of more money than common sense, maybe you can hop on a Ryanair flight and land in the amazing island of Sicily.
          Here you can visit the “cathedral in the desert” as locals call Etnapolis, a huge shopping mall located near the world-famous volcano.
          Don’t care about it because you are not from the area? Well, perhaps you will be delighted to know that since January 1 2019 Etnapolis is an American problem! Debt-ridden Italian retail group Abate sold it to Morgan-Stanley for “about $100 million” (the official figure will be reported in a month or so), which is worse than a fire sale considering how much the thing cost to build and how much money has been sunk into it over the years by the owners.

      • nick kelly
        Feb 3, 2019 at 12:40 pm

        ‘As of 2018 Italy had 2454 sq ft of retail space while the US had 21, 528’

        Source Credit Suisse

        The US has hundreds of abandoned malls. Exploring them and posting on YouTube is a cult activity. No doubt Milan, a world destination for shopping by glitterati has some room left. The modern mall construction craze will have begun in Italy after the 1956 US start.

        A different thing about the US phenom is the number of malls in ‘fly over nowhere’ to use the more polite term. To compare saturation ask how much space is vacant or abandoned.

        • nick kelly
          Feb 3, 2019 at 6:16 pm

          Space per person

        • Jack
          Feb 3, 2019 at 9:07 pm

          Ghost cities of China comes to mind! :)

          But here is a question,
          Is Simon and their excessively greedy CRE owners/ managers going to kill the next Goose ( medical & restaurants) like they killed the First multitude of retailers (200 +) ?

          The lack of foresight is quite evident, chasing un controlled growth will bring you to a screeching end , if you steal from your customers they’ll be forced to recoup those losses from their customers by extension,

          but the little man in the street can only afford ( maybe or maybe Not) a MAC Donald meal !

          So how many of those can Simon sequester into the Newly refurbished Hollow CRE Empire?!

        • nick kelly
          Feb 4, 2019 at 7:43 pm

          Sorry again. Space is per 1000 people

    • Cedric C Chin
      Feb 4, 2019 at 2:33 am

      > I don’t know if these large department stores could be converted to apartments or condos but if so, you could convert an entire indoor mall into a “village” with restaurants, bars, pharmacies, grocery stores, gas stations, etc.

      Yeah, that. The USA lost manufacturing jobs, so became a service-oriented economy. Malls should and can be the same. A local mall has pretty much entirely service-oriented stores: CVS pharmacy, optometrist, dentist, make-up, Caeser’s Pizza, Stone Cold Creamery, Mike’s Subs, Sprouts grocery. The used record and DVD store left over a decade ago.

      What online stores cannot do is replicate the “experience” of a restaurant or store, nor deliver inexpensive goods within a short period of time — yet. I sure wouldn’t mind Amazon dropping off my prescription within an hour while delivering groceries and a $10 sub — and not charging a service fee for it.

    • Nick
      Feb 5, 2019 at 9:41 am

      Better than any of that are family oriented areas and attractions….indoor/outdoor playgrounds, fun parks, that are clean, affordable, convenient. Some could be public private ventures incorporating community centers, community theatres. God knows we sure as hell dont need more assisted living facilities and old folks homes. Young families need places that are one stop shop and entertainment with young kids.

  5. Rowen
    Feb 2, 2019 at 5:27 pm

    A couple of the vacant shopping mall anchors around here are being converted to outpatient medical facilities, which make sense because: Baby Boomers going through Medicare dollars, downtown rents near existing hospitals are crazy, and seniors here tend to live in the suburbs.

    • nick kelly
      Feb 2, 2019 at 7:01 pm

      This phenom includes other professional services e.g. financial. It converts the mall to an office building. It is a killer of the mall for the browsing or shopping experience.

      The most struggling mall where I live used to have a Sears at one end and a Target at the other. The Sears is vacant and after Target left Canada its space was vacant for a year too.

      Then Lowes moved in, not exactly the ideal tenant to create foot traffic in the mall. The other big vacant spots are a medical clinic and the call center for a bank.

      You do not want to get stuck in this mall to kill even half an hour.

    • kevin
      Feb 4, 2019 at 12:09 pm

      You know, I once (half-jokingly) had a morbid business proposition to refurbish these dead malls into urban cemetary spaces, warehouse columbariums and the like.

      Its increasingly good business in Japan where they have fanciful urban spaces for their dead and even for beloved pet cemetaries (que horror movie soundtrack :) plus prayer rooms for their large numbers of soon-to-be-dying customers.

      Someone takes cares of the urns for your ancestors (for a fee of course) which are near urban centers, which spares you the trouble to travel long distances to some isolated and scary cemetary in the woods to pay your respects to the dead.

      Gives an added meaning to the word “dead” mall too.

  6. katesweat
    Feb 2, 2019 at 6:33 pm

    Austin’s Highland mall is gradually being redeveloped as a community college campus with day care, studio for the local PBS, etc. I think the plan is to eventually connect it back into the neighboring city fabric,but for now the sea of parking works for commuter students. It’s one of those older 1970s malls that aren’t as large as the 1980s ones.
    https://www.austincc.edu/news/tag/highland-campus
    http://www.austincc.edu/news/2019/01/acc-highland-redevelopment-update

    • Anton Currywurst
      Feb 3, 2019 at 11:58 am

      Highland Mall opened in 1971 at about 60% its current size and was so popular they added an anchor wing (Foley’s) around 1975. While Simon was letting the mall die, Austin Community College already owned an office building next door, and there’s light rail across the street which the community supports no matter the cost, even though it takes the long way to go where it isn’t really needed anyway (repurposed and still part-time freight line).

      Travis County really missed the boat when the mall carcass was being apportioned, because they’re out of space in downtown Austin and “need” a new courthouse and at least another EXPEN$IVE (remember, it’s downtown Austin) office building. They should have taken a wing or two of Highland Mall, but instead built a little satellite tax office in a nearby strip center. Dummies.

  7. Iamafan
    Feb 2, 2019 at 6:41 pm

    Can someone tell us what are the GSIB banks exposure to this sector?
    Who is getting burned?

    • Feb 2, 2019 at 7:15 pm

      A good part of these mortgages are packaged into commercial mortgage backed securities (CMBS) that are widely owned by investors, not banks. This includes some of the Toys R Us mortgages. For the GSIBs, these loans are not nearly as much of a problem, proportionately, as for some regional banks that have focused on CRE loans. Some of them appear to be exposed enough to get the Fed worried about them because the Fed has brought up that issue in generic terms (without naming names).

      • sierra7
        Feb 3, 2019 at 11:58 am

        Once again to the search engine:
        GSIB: “Global Systemic Important Banking”

  8. Max Power
    Feb 2, 2019 at 7:12 pm

    Considering the industry they’re in, Simon actually does a pretty decent job managing their properties.

    King of Prussia Mall in Montgomery County, PA outside of Philly is the largest mall in the US with almost 3 million sq ft of space. It’s a sight to behold. So far they’ve only lost JC Penny as an anchor.

    • Noname
      Feb 2, 2019 at 9:55 pm

      Mall of America in Minnesota is the largest mall in America. – 4.9 million sq ft. – Built in 1992, 27 years ago.

      • Max Power
        Feb 3, 2019 at 8:20 am

        It depends on which figures you use. In terms of retail space, King of Prussia is larger than the Mall of America. (In terms of retail space MOA isn’t even in the top 3 in the US.)

  9. Feb 2, 2019 at 7:17 pm

    The evolution of retail is a healthy thing. Anchors and the small shops became complacent and ownership traded investing capital into their business for cashing out and having the company pay down debt. In some ways it is a good thing as it excellerated the change from retailers who felt they could continue doing business as usual and ignore the changes in shopping patterns and what customers really want. Customers do like shopping in stores as evidenced by the high percentage of customers who buy online and then go to the store to pick up. The internet has had a large impact on malls. Malls were traditionally built when there were fewer dual income families. This is no longer the case and the need to create more reasons to is far greater. China is well ahead of the US in adapting to impact of on-line shopping and the need for more reasons to visit a mall. Many malls are reducing their retail space to 30-40% of GLA and adding more food and experiences. The experiential can range from museums and tutoring centers to indoor sky diving and equestrian centers. They have gotten to the point where customers pay membership fees to visit the non-mall activities. Think Mall of America and MGM Grandnin Las Vegas. Malls traditionally have strong real estate and the ability for business and. Medical providers to locate on the mall grounds provides a better lifestyle for customers and smarter business for the developers

  10. WES
    Feb 2, 2019 at 7:19 pm

    If you have a seat on unsecured creditors committees doesn’t that sort of imply that you are in the same sinking boat? Just asking for a friend!

  11. Dave K.
    Feb 2, 2019 at 7:23 pm

    Could be used as a marijuana grow op….you need big space, they’ve got it

  12. Morty Mc Mort
    Feb 2, 2019 at 8:06 pm

    What about a Complete Solution? – Eateries, Restaurants, Fast Food, Grow Ops, Cottage Specialty Edible Shops and Boutique Cannabis Ops, Head Shops and Custom Manufacturing of Bongs etc, Medical and Outpatient facilities, addiction Clinics etc etc..
    YOU ARE WELCOME AMERICA – WELCOME TO YOUR BRIGHT NEW FUTURE!

    • Drater
      Feb 3, 2019 at 9:55 am

      You forgot the dialysis clinics and tattoo shops…they seem to be in high demand based on what I observe on a daily basis.

  13. California Bob
    Feb 2, 2019 at 9:18 pm

    “Leveraged buyouts were not ultimately beneficial, by and large, to our business.”

    Understatement of the century.

    I used to work next to the Stoneridge Mall; except for Christmas it didn’t seem to get a lot of traffic (it had a Sears). OTOH, Vintage Faire in Modesto always seems to be PACKED. Go figure.

  14. Bernadette
    Feb 2, 2019 at 10:33 pm

    Here’s an idea: Repurpose the ground street and 1st level of these ‘dying’ malls to a Escapism and Beauty Theme.

    Escapism Theme can include a Virtual Reality room with plush massage recliners for adults and other room for young adults. Another is a Quiet Room exclusive for highly stressed women (who would pay for Quiet Time) with the option of therapeutic massages. For men who smoke: Open up an open terrace to smoke weed, cigar and vape. Of course, this includes ‘gorgeous looking, underemployed or retired over 50 yr old seniors citizens’ as servers and to upsell every product.

    The Beauty Theme is easy. Cater to men, women and children. Price perception is the key.

    Food for Thought.

    • HowNow
      Feb 3, 2019 at 8:37 am

      I like Bernadette’s way of thinking… and the notion that there are “georgeous” over 50 yr old seniors. Their salaries would be huge since the supply/demand ratio is pretty lopsided.

  15. malcom thomas
    Feb 2, 2019 at 10:57 pm

    Potemkin Villages. Coming to a mall near you.

    • yngso
      Feb 3, 2019 at 9:08 am

      You said it! I’m from Norway, and already a decade or 2 ago it was said that Norway had enough malls to service both Norway and Sweden. Sweden has twice the population of Norway. Now weak specialty store chains are dying. Look again at the top of the graph. The top is in, GLOBALLY!
      I don’t even live in the USA, but this type of news is in-my-face all the time from there, and from Norway to Italy to the simply humongous malinvestments of China, it’s the top for much of the world.
      Retailcalypse is only one symptom, but a very evident one. The happily growimg places in the next decades will be parts of Asia – Southeast Asia and India accordng to Harry Dent – and Latin America and Africa.
      Potemkin villages won’t save the developed world…

      • MC01
        Feb 3, 2019 at 12:10 pm

        If you think Europe has a brick and mortar retail problem (which she has), you’d better head over to Asia.
        The maxi-malls in Metro Manila, Bangkok, Shiraz etc need to be seen to be believed and, here’s the funny bit, the old markets/bazaar where you can buy everything from a last generation smartphone to the best spices known to man are still there to be enjoyed. If you prefer online shopping, no problem: even if Amazon hasn’t arrived in your country yet Bershka, Hallohallo, Lazada etc will be happy to have your business.
        Asian consumers may not be “maxed out” yet, but they aren’t holding back either.

  16. OlliBoy
    Feb 3, 2019 at 2:10 am

    “You just can’t have too much leverage in any industry and any business. When you run into an economic difficulty, or if you need to make investments, you just have nowhere to go.”

    That sentence would make so much sense, if spoken by a FED official!

    • Bankers
      Feb 3, 2019 at 9:10 am

      From the fed it means :

      Unless you have everything overleverage , printing money doesn’t work, nor control of the economy with it.

      You see, normal business owners know the difference between a project they invest their future into, and an instant pile of paper. They tend to take on the paper if they need to expand or keep their business going, but they only sell out when cornered. Overleverage corners them, both contractually during slowdown and by allowing a boom of competition beforehand, which will also be highly leveraged. This places those who direct the supply of money in ultimate control, until if their money loses its overall meaning of course. So when you see stocks in pitchfork manufacturing rocket, you know they know they are nearing an endgame and are just drawing off the last few bucks.

  17. Iamafan
    Feb 3, 2019 at 10:52 am

    Quote: China Life Insurance recently acquired an 80% stake in 10 shopping centers in places such as Marietta, Ga., and Charleston, S.C.. through a joint venture with Site Centers Corp. that valued the portfolio at around $607 million.

    So the Chinese are still coming???

    • Feb 3, 2019 at 12:23 pm

      Yes, some, but in much reduced from, while others are selling. We’ll get the net figure for 2018 in March. It’s going to be pretty small.

  18. Feb 3, 2019 at 12:23 pm

    Before we start shedding tears, how much of these properties were TIF/tax deferred.
    I had commercial property and got reamed on the taxes, citi builds $50M piece across the road, they are tax deferred.
    the TIF, a friend of mine was 2nd generation tradesmen, the seized his property forcing a mortgage on the new place. The big boyz in charge.

  19. roddy6667
    Feb 3, 2019 at 9:23 pm

    Simon is concentrating on building Class A malls, the upscale stuff. Maybe they will lose Class money on it. Reminds me of the Eighties. Perfectly good retailers who serviced the middle class, like Caldor and Ames, forgot who they were and went “upscale” during the easy money days of the Eighties. When the Nineties with the real estate crash and tough economic times came, not enough people had money to be upscale any more. BK court, here we come!

  20. Chris
    Feb 4, 2019 at 3:43 pm

    Who knows, but maybe as the dust settles from foreclosures and forced vacancies, bankruptcies and re-purposing of the spaces in high-traffic and otherwise desirable locations, and if American manufacturing picks up as it shows promise of doing from time to time, the same properties could be used in the same way that they were intended – as retail space – for outlet malls.

    As I travel around the USA from time to time (and when I do, I mostly drive, so I spend a fair amount of time on the ground, driving through flyover country) and over many years, one type of retail outlet and conglomeration that never seems to suffer much, or for long, are the various manufacturers’ outlet malls. In fact, those places seem to grow in ubiquity and in size – and it’s still essentially “just retail marketing”.

    I think most individuals participating in this thread and following Wolf in general understand the basics of markets and market clearing: these places may not be worth what they were once thought to be worth, but they aren’t without any value at all, either, even if it can’t be perceived at this moment – and even if the presumed values have appreciated beyond realistic values. If we allow the process to work itself out – and I say “if” because it’s a painful process; it takes a long time sometimes; people who need jobs lose them when their employers go bust, and – maybe worst of all – the loudest complaints come from the most well-heeled investors and owners, who have the ear of local and national politicians. So there’s often not enough patience to wait for things to take their natural course and for processes to work out – or for properties to stagnate, sometimes for years – while people are feeling pain and election cycles keep coming on and on.

    There’s too much impetus to Do Something! Now! And when the something is dictated by who is howling the loudest – and who can get the politics right in his case – then that something is usually the wrong thing at the wrong price. I think that’s part of the explanation of how we got from an overvalued state in 2008 to … a state of worse overvaluation in 2019. (I don’t know about “the rest of the world”, but I presume that the parallels are similar elsewhere to a large extent.)

    The process will work – I know it will! But it has to be allowed to work, and that’s where my faith weakens. I don’t think we’ll give it the necessary time – or go through the wrenching states of grief necessary to enable that.

    Interesting times, indeed.

  21. A/C in SD
    Feb 6, 2019 at 2:53 pm

    Sorry I’m a bit late to the game on this one. Just found out that the closed Sears store by me (92020) is currently being remodled and repurposed by the Seritage Co, Chairman there is none other than Eddie Lampert! That’s right, after running Sears into the ground he’s remodeling the building for a new anchor store (s) in this mall. Seems a bit fishy to me!

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