What Options Do Mall Landlords Have When Brick & Mortar Retail Melts Down on Them?

Even in San Francisco: From a brand-new glitzy zombie mall to innumerable vacant storefronts.

By Wolf Richter for WOLF STREET.

Mall investors have long denied it. But year after year, ecommerce has been eating up brick-and-mortar retail sales, in the third quarter faster than ever, and in the fourth quarter, according to early indications, even faster. Turns out, ecommerce is a structural change that grew out of the arrival of the Internet, has been underway for two decades, and will continue until it has played out.

Sure, malls are not all going to be shuttered overnight. But many of them have already been turned into zombie malls; and others that are located on good locations are being redeveloped into office and apartment buildings with some retail and restaurant space, along with movie theaters, and other entertainment venues.

One of the big issues for malls is that department stores that anchor them are being closed, either because retailers are reducing their brick-and-mortar footprint as they switch to ecommerce, such as Macy’s; or because retailers are getting dismembered in bankruptcy court, such as Sears; or because retailers are now moseying over to the nearest bankruptcy court, such as J.C. Penney. If a mall is anchored by two department stores and they both close, it’s fiendishly hard to maintain the mall as a mall.

One of those malls, the Stonestown Galleria in San Francisco, had been anchored by two department stores, Macy’s and Nordstrom, both of which closed (Macy’s closed two out of its three stores in San Francisco). This was a devastating blow for the mall.

But wait. The mall was owned by struggling mall REIT GGP (formerly General Growth Properties) which owned 125 malls. In August 2018, an entity of Brookfield, a giant private equity firm headquartered in Canada, with publicly traded subsidiaries, and an expertise in huge construction and development projects, bought the two-thirds of GGP it didn’t already own for $15 billion. And people thought, aha, the brick-and-mortar meltdown was overblown, and malls are just fine.

Brookfield has developed a taste for buying the most distressed assets: At the same time, also in August 2018, one of its units bought nuclear-reactor manufacturer Westinghouse out of bankruptcy for $4.6 billion.

In terms of buying GGP, I doubt Brookfield’s main purpose was to take a contrarian bullish bet on a beaten-down, long-term-moribund industry, blindly hoping that it would miraculously recover. More likely, it took a bet on the large pieces of land in good locations that Brookfield, with its expertise in large construction projects, could over time redevelop into high-end apartment and office buildings and hotels, dotted with grocery stores, movie theaters, restaurant sites, and other uses.

This is becoming clear at Stonestown. Development projects in San Francisco are complicated, require input from everyone, including neighbors and their dogs, and take forever. But the process has started. Instead of worrying about department stores as anchors, construction has started on a Whole Foods – grocery stores having mostly been spared so far the brutal attack of ecommerce – the 11-screen Regal movie theater, and a Sports Basement. That was the easy part.

The property sits on 40 acres, most of which are parking lots. And housing is planned for much of the space.

“We have been honest with people,” Brookfield senior VP Jack Sylvan told the San Francisco Chronicle. “The way to make a vibrant place is by adding a mix of uses, and that is definitely going to include housing.”

Given the size of the property, it could turn into the second largest housing development project west of Twin Peaks, with thousands of apartments (the largest project, Parkmerced with 5,679 apartments, was approved eight years ago but construction still hasn’t started).

So far, Brookfield has identified $2.5 billion in redevelopment projects on nine of the 125 malls it acquired. These projects include office complexes, hotels, and housing, according to the Wall Street Journal.

In addition, Brookfield has identified $2.6 billion of longer-term projects, such as the residential buildings at Stonestown in San Francisco and new residential towers at the Ala Moana Center mall in Honolulu.

These projects take time and lots of money, but for well-located mall properties, there will be a use, but much of it will be housing, offices, and other uses – not retail.

Under these pressures, new mall projects are getting scrapped.

What would have been one of the largest malls in San Francisco, to be built as part of a huge redevelopment project on a 280-acre site that includes the land where the San Francisco Giants stadium, Candlestick Park, used to be, was scrapped earlier this year by the developer, FivePoint Holdings.

Instead of building the 635,000-square-foot mall at Candlestick Point, it plans to build a 750,000-square-foot office and research facility at the site, which kicks off a new approval process with the City. This is in addition to the 7,200 housing units planned for this 280-acre site, along with a 200-room hotel, and some 300,000 square feet of commercial space.

And then there is the brand-spanking-new glitzy 264,000-square-foot mall on a still gritty but to-be-revitalized stretch of Market Street in San Francisco, the 6X6 (referring to its six floors of retail space and its proximity to 6th Street). Dallas-based developer Cypress Equities completed it in 2017, after having spent $150 million on it, but it never found a single tenant, and the mall remains vacant and closed.

“Six Floors, Endless Stories. Next Generation Retail Experience,” the mall’s website says with biting brick-and-mortar-meltdown humor:

The developer later obtained approval from the City to convert 50,000 square feet to office. And it continued to sit there as glitzy zombie mall.

In August 2019, it was disclosed that biotech real estate developer Alexandria Real Estate Equities and TMG Partners acquired the glitzy zombie mall. The fate remains uncertain. There will likely be some retail and restaurant space in it, in addition to office space, because the City is a real stickler for keeping retail space alive.

And keeping retail space alive quickly became a sticking point at the 263,000-square-foot Macy’s Men’s store near Union square. Macy’s sold the building in late 2016 for $275 million to a partnership between Morgan Stanley and Blatteis & Schnur. They wanted to convert it to an office building. The City wanted to keep the building retail, since it’s in the retail center of the City that forms a big draw for tourists.

And now there appears to be a compromise with the upper floors being converted to office space, and with the lower floors being developed into fancy retail spaces, shops facing the street, upscale restaurants – there are already about 8,000 restaurants in San Francisco! – and art galleries. An 11,000-square-foot roof-top restaurant space will be added. The building remains encased in scaffolding.

For well-located mall properties, there are options. They likely don’t involve the kind of retail that department stores offer. These examples here are properties in a booming expensive city that is still considered a retail mecca by foreign tourists, with plenty of demand for office space and housing. Every one of these conversions requires large amounts of investments and might take years.

San Francisco’s insistence on maintaining retail space is happening despite the innumerable shuttered retail stores that line commercial strips and neighborhood corners alike.

They have become such an eyesore and problem – with everyone complaining about them – that the Board of Supervisors voted in March to require landlords to register vacant and abandoned storefronts within 30 days of becoming vacant and pay an annual $711 registration fees; if they fail to do so, they have to pay four times the amount of the registration fee. But so far, no effects are visible, and the vacant storefronts continue to multiply.

Wow, that was fast: In default is a $650 million portion of a $2 billion loan package, signed in 2018. Read…  Brick & Mortar Meltdown Manhattan Style: Lenders Foreclose on Times Square Tower whose Six Retail Floors are 90% Vacant

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  160 comments for “What Options Do Mall Landlords Have When Brick & Mortar Retail Melts Down on Them?

  1. MCH says:

    Mix use condos, tear the sucker down like they are doing to Vallco in Cupertino and put up condos, affordable housing style. Cause the other types are going to just sit there.

    As for Ala Moana, if they redevelop that sucker any more, it will tip Oahu on one end and sink it into the sea. I remember when Ala Moana was two floors and one straight path from one end to another, now it is a four story frigging maze. Makes me wonder how those tenants survive… ok, I suppose tourists from Asia mainly.

    • Wolf Richter says:

      The problem with redevelopment is that they’re all trying to do high-end. Because that’s where the money is. But by definition, the market has only a small high-end. And this creates the mismatch been supply (high-end) and demand (mid to lower-end). And so the high-end starts coming down in price because there isn’t enough demand, and this puts pressure on what’s beneath, and here we go. We’re already seeing some of this.

      • Unamused says:

        And this creates the mismatch been supply (high-end) and demand (mid to lower-end). And so the high-end starts coming down in price because there isn’t enough demand, and this puts pressure on what’s beneath, and here we go.

        The demand offered by the mid to lower-end may not be enough to sustain these projects either, due to increasing medical costs, high housing costs, increasing student and consumer debt, and forty years of wage suppression.

        Still, investors have the money and it’s going to go somewhere because it’s just going to rot sitting in an account that pays interest less than inflation. So that money is at risk of being misallocated and wasted. Not all of it can fly to safety in equity market bubbles or overseas investments.

        If the general population had been able to take its share of the rising productivity of the last forty years this problem may not have occurred because the demand would be there. Increasing consumer debt cannot be a long-term solution. ZIRP policies can only disguise the problem for so long, hence the resort to NIRP which won’t work and is being reversed. No help there.

        What’s the solution? There isn’t one. The corporate class worked hard for decades to grab more than its share, despite the consequences, and it’s not about to reverse course. Instead it will double down and compound the problem until the system blows up.

        Sorry.

        • Mark says:

          Exactly Unamused…… very well stated

        • Endeavor says:

          Open borders and even more money printing may do the trick, Unamused, Quality of life issues be damned.

        • Old Engineer says:

          Indeed. Very succinct and accurate summary. History shows a lot more people than are suffering now will have to suffer a lot more than they are now before they decide it’s time for change. Change is so scary for people they will often chose poverty first.

        • michael earussi says:

          One of the greatest challenges in the successful maintenance of any civilization is to somehow keep the elite from draining so much energy out of it that it collapses. Unfortunately, in this society we’re failing at that.

        • timbers says:

          I agree.

          That’s why I consider the French to be light years ahead of Americans.

          That’s why I say Americans have so very much to learn from the French.

        • two beers says:

          “If the general population had been able to take its share of the rising productivity of the last forty years […]”

          But thas commanizm! You will take your decreasing standard of living and like love it. Because America!

        • kiplingsif says:

          All the more reason to shun the current system as much as possible and follow your survival instincts.

        • polecat says:

          Solution .. ??

          Why .. Tumbrels & Guillotines, of course !!

        • Dale says:

          Agreed.

          But I wonder if a 5% per year vacancy tax wouldn’t have some useful effect.

          If a vacant storefront (or a vacant house, or warehouse, or factory) loses 5% per year to taxes, somebody will eventually decide to put it to use. And if the alternative use is also too expensive– another 5%, thank you.

      • RD Blakeslee says:

        “Because (high end’s) where the money is.”

        It’s also minimizes neighbor’s opposition.

        Low income > NIMBY

        • char says:

          High end in retail has more NIMBY issues than low end. Young inner city people buy high end clothes. More seasoned readers of Wolfstreet probably buy the cheaper clothes

      • c1ue says:

        I read at AdventuresinCapitalism that high end also is problematic because it also involves much higher carrying costs.
        So dropping the price is not extremely practical because the maintenance is much, much greater cost.
        Midmarket properties can slash prices and sell eventually, high end – not so much. At least according to that article.
        Given the mostly very high end, 40+ story, 10-15 condo towers that have gone up in SOMA in the past few years – it will be interesting to see how that plays out.

        • Wolf Richter says:

          c1ue,

          Yes, in terms of a vacant investment, high-end condos are terrible unless prices surge all the time. When that’s no longer the case, carrying costs eat you alive. Which makes for a real incentive to sell.

      • MCH says:

        Wolf, we both know this, but the politicians don’t care, it just makes them look good to talk about the below market rate housing they have put up. I think the big problem is they need to just let supply and demand work.

        But in SF, I think things will even out eventually anyway. Because the city is doing a good job of making it unlivable for people anyway.

      • CityofMen says:

        A few years ago they came into the slums near me, bought all the apartments and upgraded them to ‘condos’, often the end result was worst than the origin, but the ‘ownership’ angle brought in fresh money, best of all in brought in ‘High-Density’ tax base to the City.

        This is all you need to know.

  2. Willy2 says:

    – Convert them into cheap housing for workers who can’t afford the high condo prices and rents in S.F.

    • Mick McCall says:

      Yep, housing, the entire area under roof is already HVAC and toilet equipped.

      • JohnnySacks says:

        Toilets in one corner of a couple hundred thousand square feet and a couple large HVAC units don’t correlate well to housing. Maybe fill the interior up with shipping containers for housing and have shared restrooms for some sort of dystopian sci-fi Snow Crash/Neuromancer style?

  3. William Smith says:

    I love watching all the abandoned mall videos on youtube. These conspicuous consumption cathedrals provide lovely time capsules of the decor of the times in which they were consecrated. Bring back local strip shopping where the grocery store is the local “anchor” and to where you can walk if you desire not to be forced to worship the four wheeled metallic demon. Call me naive.

    • Deanna Johnston Clark says:

      My city, Savannah Georgia, is a hybrid of cars, bicycles, walkers, horse carriages, buses, scooters, and pedicabs. The famous squares are full, with the added fun of tourists driving every way but up.

      But what can the city do? Delivery trucks are everywhere and keep the food and booze flowing.

      I like your vision…but some real cultural change may have to be forced by inflation or oil prices or something. Locals own almost none of it…oligarchs have turned it into Disney Savannah, a town that draws those fascinated with the cruelty and creepiness of slave times. The best of the south has had to move out almost entirely.

      • JBird4049 says:

        Like Disney San Francisco?

        The entire Bay Area was a mix of everything including farming, industry, shipping with a complete range of different affordable areas of every class. Now it is Silicon Valley with its Tech-lords and venture capitalists, the tech serfs, and everybody else. With a theme park facade.

        Don’t mind the excrement because public restrooms are so passé! Just admire that Third Work odure as you traipse by the ten thousand plus people who cannot afford those empty high end apartments and condos.

        See the empty stores brought to you by all those investments firms that buy, asset strip, and discard entire companies or demonic vampire companies like Amazon and Walmart who also destroy entire industries and downtowns.

        Sometimes, I wonder if I am mental or if the wealthy and the establishment actually believe that all this magical neoliberal wonderment of the free market capitalism is actually good even for them or is this some massive suicidal grift.

      • What an amazing write-up! You should be a travel writer! ?

  4. dr_doomz says:

    “Development projects in San Francisco are complicated, require input from everyone, including neighbors and their dogs, and take forever.”

    Right. Even the dog’s flees if you ask me.

  5. Realist says:

    It will be interesting to see when numbers are released for this holiday season:

    – total spending, did people again use their cards until they where gloving by heat from usage ?
    – retail vs ecommerce, how did retail ( minus groceries and such ) fare against online buying ?

    • Nicko2 says:

      Interesting stat: The Average British Family will spend as much on Christmas as the Average Individual American.

      • joe saba says:

        we recently saw circle K and big grocer close on one major intersection because they were losing $1,000,000 a month to theft(with security)
        now we have food desert and new GYM going in
        another mall has new BOWLING alley were sears used to be
        KMART still vacant after 2 years

        • Old Engineer says:

          I’ve come to doubt claims of stores whose profits start to go south when they blame it on theft, or pilferage. Putting in extreme anti-theft doesn’t ever seem to solve the problem and the stores go down the tubes anyway.
          Home Depot, where I spend a lot of time recently made this claim. There has always been stealing from packages of screws and bolts, where someone opens a $1.75 package and takes one screw. But they’re not going broke over that. And how do you walk out of the store with an appliance without paying for it? It can’t be easy enough to happen frequently.

        • How do walk out of a store with an appliance without paying for it? Use a credit card.

        • pedro says:

          home depot loosing money from their own employees in theft.if cashiers do not scan products.i bought one electric tool on ebay for half price what HD offer.when It came I find out it was from HD store.box never been open.but label was from HD.this is bigger problem when you do not pay your employees enough.

        • California Bob says:

          It always surprised me that the local HDs’ ‘self checkout’ stations do not require the customer to put scanned items on a scale. I don’t steal, and it’s convenient to me, but the risk is obvious.

        • TheyKnow says:

          All tagged product has a RFID, a rfid is a passive device, called radio-frequency identification, they use no power, they’re just a tuned oscillator, not unlike a guitar string ( although smaller than a flea ) that is ‘plucked’ as you exit the store, once you exit then the RFID’s are activated and they can detect what your walking out of the store with, this is more for inventory control, but nonetheless, if you did walk out without paying, they would know.

          All tires sold in USA have RFID’s in the tire, so every time you drive though a turnstile, or gov inspection point your tires are reporting your coming&going. The Chip’s in dogs are RFID’s, but +20 year old technology. New stuff is far more accurate and transmits a greater distance.

        • Gandalf says:

          pedro,
          Being a value shopper, I’ve often found great prices for stuff on eBay that I’ve suspected “fell off a truck” somewhere.

          My suspicion has long been that eBay is probably the world’s biggest fencing operation out there

      • Cobalt Programmer says:

        Spending money is not a problem if debit/cash/income is used to buy. The real problem is spending credit/borrowed cash/layaway. The items are also sometimes junk, luxury and pointless gifts. Its the stuff we don’t need, purchased with money we don’t have and to impress people who don’t care about us.

        • JBird4049 says:

          A lot of shrinkage happens when there are not enough employees. If you don’t have enough people to man the registers, you don’t have enough people to keep an eye on thief.

      • Javert Chip says:

        The average American family ($65k/yr) makes 50% more than the average UK family ($41k/yr)…and Americans pay less taxes.

        https://www.worlddata.info/average-income.php

        • char says:

          Healthcare and education is a lot more expensive in the US and are about as easy to skip as taxes.

          Britain has boxing day so it would not surprise me if Brits spend the same as Americans on Christmas if you excluding presents

        • Argus says:

          UK families have the National Health Service.

        • Cashboy says:

          Javert Chip,

          Heathcare is free in the UK. That might make a difference.

    • tom says:

      Saw a headline that said 34.4b on Saturday…a new record.

      I’m sure it was all cash.

  6. FP says:

    $34.4 billion Super Saturday but malls are still dying. Seems like they have no options at all.
    Do retailers themselves really care though? Only if they can’t make the successful switch to online platforms I would think.

  7. Calm Horizons says:

    I, for one, am saddened by this, maybe because I grew up where the mall was a special place to go (the only store to shop at in my home town was a Kmart). Where I live now, the local mall had four anchors just two years ago. It has since lost two, and a slew of stores inside the mall have since closed their doors. The mall’s big hope is that a casino is slated to move in to one of the dark anchors next year. We’ll see how that goes (never been a fan of the idea of ‘gambling our way to prosperity’). Ironically, the various ‘strip malls’ around here seem to be doing fine – in fact, they’re building new ones all the time.

    • Jon says:

      As one who has worked in the “gaming industry”, I can tell you casinos are a horrible, horrible place. Gambling is nothing but a tax on poor people.

      Any state or local government that legalizes gambling of any kind is a pox on our society. Potterville, here we come.

      • CityofMen says:

        Like GOV lotto, a tax on stupid people.

        Funny thing is given the success of casinos, its rather obvious that the majority are morons.

    • char says:

      Mall casino: Degenerated gamblers that won’t create footfall, maybe even negative footfall.

  8. Crush the Peasants! says:

    Lease to China for Uighur “housing.”

    Predictions on the American Dream mall in the NJ Meadowlands? 3 million sq. ft. You can go skiing there.

    • RepubAnon says:

      NJ’s Meadowland Mall project is the ultimate zombie death march project: doomed to a failure which nobody wants to be blamed for.

    • Erich says:

      Predictions on the American Dream mall in the NJ Meadowlands?

      The New York metro area’s largest Amazon Fulfillment Center in 3 years.

      • char says:

        Fulfillment centers are gigantic. Is that mall so big?

      • CityofMen says:

        AMZN fulfillment is to be done by convict labor at 12 cents/hour, this is the future.

        Earn just enough for cigs, but not enough to pay the ‘hotel’ costs, so you always end up with more debt than when you went to jail.

    • MC01 says:

      American Dream Meadowlands (too bad the meadows are now buried deep under the concrete) was built by the Triple Five Group (555), which seems to have a knack for doubling down on retail as Amazon & co are eating their lunch, quite literally.
      People from South Florida probably knows more but 555 is presently trying to build the biggest mall in the US in Miami-Dade, a monster with over 6 million ft³ of retail space very very near the Everglades National Park. How this stuff could even get preliminary approval says it all about the paramount importance of real estate speculation. Where are all the environmentalists?

      Anyway 555 seems to finally have some issues financing their sprawling ecomonsters: to obtain financing for Meadowlands they had to pledge 49% of the Mall of America and shares of other properties as collateral and some of their developments in Nevada seems to have cash issues.
      555 is a Canada-based private company, so information is hard to come by, but they do look a whole lot like a dinosaur from the 80’s.
      The big question is, of course, who is lending 555 money? To be honest the Mall of America doesn’t strike me as ultra-prime collateral unless you are a child of the 90’s who remembers the name as something “hip”, and the rest of their properties is not exactly enticing.

  9. Joe says:

    I still can’t fathom how a startup store today can be of any success due to the massive fees, regulations and overhead. From different insurances that you must have to the ever changing and rising taxes in a multitude of forms. Not to mention the footage costs, and security fees to try and protect your products from theft.

    • JohnnySacks says:

      And the rent for main street mom and pop stores and restaurants is staggering. I can’t imagine how many $8 sandwiches it takes each day for a cafe on main street to just make the rent payment. Then the older family decides to sell the really nice luncheonette they’ve run for decades but the town makes the new owners bring it all up to code so they do the right thing: walk/run away from the deal. They’re the smart money.

  10. Tank says:

    Put solar panels on the roof and generate electricity; change some of the space to office; maybe residential as well. There’s a skating rink in one near us, Clearwater FL. Not exactly like the one in Dubai Riyadh or the UAE bur they’re much more friendly to Jews and Christians

  11. Randolph Caban says:

    Let the earth breathe stop the insanity of overdevelopment. Our glut of commercial and industrial more means less quality. Fake economy of real estate.

  12. Old-school says:

    The market right now is becoming unhinged with Fed liquidity. Since Fed turned that back on in early December Tesla is sky rocketing and is losing money hits $420 and retail REIT SKT who will make about $2.28 in levered free cash flow is nose diving at $14.50. SKT debt is rated about 7 steps higher than Tesla.

    Fed is fueling speculation over price discovery and investing.

  13. Iamafan says:

    Brookfield has a brand new mall here in Nowalk, Connecticut called the Sono Collection. Built from the ground up right in the intersection of busy I-95 and Route 7. Amazing shiny new monster. Not sure who goes there when there are much, much more richer and tony towns with botiques beside it (like Dalio’s for example).

  14. Cmoore says:

    I don’t think retail is dead but it is changing. People order through Amazon and then send the packages back when they are dissatisfied. Who pays for that? I doubt the shipping co does.

    • Wolf Richter says:

      The retailer pays for the cost of shipping the package back. It doubles the shipping costs, while at the same time, the sale unwinds and the retailer sits on merchandise that it can likely no longer retail. The retailer can sell it to a deep-discounter or outfits that sell it on eBay, but for only a fraction of the cost. The other options is the landfill.

      But returns have always been a problem for retailers in the US, long before there was the Internet.

      This includes abuse, such as buying a cocktail dress, wearing it to a party, and returning it the next day. I know people who routinely did that. The costs for the retailers were likely even larger back then because all the returns were handled manually, by local staff, that had to give refunds, and deal with the merchandise. Then the merchandise was sent to central processing centers (adds transportation costs) and then it was again consuming costly manpower to be sorted into three directions: merchandise that could be retailed again (like a vacuum cleaner); merchandise that would be sold to a discounter, or stuff that went to the landfill.

      Much of this is automated today and much more efficient. So total costs per each return are likely lower than they were 30 years ago.

      • Olivier says:

        I am not sure about that, Wolf. Maybe return processing has become more efficient but there must be more returns as well. The phenomenon of people ordering 20 pairs of shoes and returning 19 (or even all 20!) of them didn’t exist before, for instance: they would have tried them in the store.

        Same with books. I was appalled for instance to discover that the Library of America (a collectible or near-collectible imprint) encourages the practice: take a subscription and return what you don’t want. That has reduced my own willingness to buy by several notches.

      • Cmoore says:

        Makes sense!! Thank!!

      • otishertz says:

        When I owned a retail store the manufacturers always deducted returns from my invoices. I only ate the shipping charge to us.

        Usually they told me to trash the item. Sometimes the defective items were kept aside for the rep to pick up. If the company wanted the item back right away they would send a call tag. Any servicable item that I was told to throw away usually found a happy home.

        The big retailers have huge leverage over thier suppliers. Manufacturers probably take them at their word about returns and tell them to discard all returns. This allows them to have very liberal return policies that are then used for competitive advantage over mom n pop.

        • Wolf Richter says:

          In terms of the retailer, warranty returns (something doesn’t work or is broken) are handled differently than the no-question-asked return (“I don’t like the color of the blouse.”)

          We could NEVER send stuff back to the manufacturer. Even warranty parts (auto parts) for which they reimbursed us, we would have to put it into a bin and occasionally a rep would audit the parts… they wouldn’t actually take it back.

          On the retail parts side, our CUSTOMERS constantly returned stuff to us and we had to deal with it.

          However, on the vehicle sales side, we had a strict return policy: once the deal was done and the vehicle was in your name, it was yours. There were no returns after the deal was done.

          BestBuy sells laptops that have been returned. They reinstall the operating system and sell it at a discounted price, with full disclosure. This happened to us, when a laptop we bought had a problem loading properly, and instead of fixing it or whatever, they offered us a refund, and then offered us a great deal on a “new” (sorta) laptop of higher value (more goodies) that had been returned. We took it. It didn’t even have the original box anymore. And I’m sure someone else is now using the laptop we returned.

          No way will Walmart ship that blouse back to the manufacturer in Bangladesh because Jane didn’t like the color. But if that vac doesn’t work, Walmart will get with the manufacturer and get it reimbursed. It might also ship it back to the manufacturer, depending on their deal, at the expense of the manufacturer, which might want to inspect the items to know what went wrong to improve the product.

          However, if you have a $1,000,000 piece of equipment, and something doesn’t work, everyone will try their darndest to solve the problem. But that’s not a retail deal.

        • otishertz says:

          I don’t know about the auto industry but I’d guess policies probably vary by industry. Was standard practice in the two retail industries I took part in to settle returns with the purveyor of the goods and that almost always resulted in permision to disard for credit.

          If there were an inordinate amount of returns of an item it set off red flags and us usually putting the products aside for manufacturer inspection.

          What I’m sugessting is that big retailers have the kind of power over thier suppliers that alows them to take returns with little financial risk. Much moreso than I did.

          The order flow they produce is so big that in practice it benomes a no-questions-asked return policy between them and thier reps that then gets weaponized for competitive advantage against smaller outfits that don’t have the same leverage over thier suppliers.

        • otishertz says:

          For the first half my retail career I was selling an average sale of just under $40 and the other half of my career around $10 average sale.

          So, Items in the $20-5000 range at first then items in the $2-200 dollar range in the second half. Both businesses averaged about 100-200 customers a day so there was a wild range of dollar amounts.

          I think the difference between my experience and yours is you were in a vertically integrated and vertically controlled supply chain dealing with much higher dollar items that might require actual documentation.

      • char says:

        There was a recent scandal in Germany that some of Amazon retailers send their returns to landfill

        • TheyKnow says:

          Here in ASIA, when I ask for a return from BABA (aliexpress,alibaba,lazada,…) almost always when I request a refund and just tell me to toss in the trash.

          it’s clear that its in nobody’s interest to return garbage home.

          Refund examples: Wrong item shipped, defective, … I think shippers really count on the fact that most buyers don’t want to go through the hassle of doing a return.

          Worst part is that charge-backs are now difficult, because BABA has bought most the visa service companys like ‘capital one’ in the USA, so they have a vested interest in deny a refund. Long ago benefit of doubt was given to customer, now its given to AMZN/BABA.

      • Willy Winky says:

        Your brand new returns end up in landfill

        Each year, 5 billion pounds of waste is generated through returns.

        https://www.bbcearth.com/blog/%3Farticle%3Dyour-brand-new-returns-end-up-in-landfill/

        No big deal because most of the ‘stuff’ people buy ends up stored in the 4 car garage. And eventually pretty much all of it ends up in landfill.

        • Wolf Richter says:

          Only SOME of it ends up in landfills. Like I said, we bought a laptop from Best Buy that had been returned and didn’t end up in a landfill. There is a market and a price for much of this stuff. See my long comment above.

      • Cashboy says:

        If you look at a big online clothes retailer like ASOS in the UK, they have massive returns.

        If you are buying shoes in a shopyou would find the size say 9 and then the colour you like.
        Online you would order 8.5, 9 and 9.5 of both black and brown and then return the other 5 pairs of shoes at a cost to ASOS.

        Then how does ASOS return that returned stock is going to be critical.

    • Mars says:

      Great update, Wolf

      AMZN has announced free returns as well as partnering with BM storefronts – standalone kiosks for pickup, Kohl’s stores for returns, etc. Partnering as well as managing their own BM locations will continue to develop in some form as they move onward.

      BM Over-development/over-supply has occurred before AMZN came along. No doubt there is disruption in large mall anchor tenant survival VAV online shopping and demographic preferences. This has affected the rate of change.

  15. RepubAnon says:

    San Francisco is suffering from Prop 13 syndrome: housing and office property tax limits below the inflation rate. As sales tax revenue is based on the price paid for goods, sales tax revenue keeps going up. Hence, retail space is desirable.

    Plus, retail stores don’t demand much in the way of city services, like schools, parks, etc. Change the property tax limits to exclude commercial space, and things will change.

  16. MC01 says:

    According to the latest census data San Francisco proper has a population of 883,000. 8,000 restaurants mean one restaurant every 110 persons which is simply amazing even considering the large number of offices and tourists.
    So my first question is very simple: what is the life expectancy of these restaurants? Because even with financial repression back in full swing the competition must be ferocious to say the very least, and coupled with crazy high lease costs it means margings are paper thin, if they exist in the first place.
    My second question is a tad more complicated. That rooftop 11,000ft³ restaurant on top of the 6X6 must need substantial financing just to get started. Who’s going to put up the money and at what rates? The 6X6 owners may offer a lease at ultra-favorable conditions (by Bay Area standards) and even cover part of the costs of furnishing the thing but we are still looking at a huge outlay, in the order of the few millions, and that’s without the initial promotional campaign.

    I am not exactly known for being a gourmet, but the financial dynamics behind these things fascinate me, for no other reason I see how long restaurants last even in the present environment of financial repression and I would consider that “distressed asset” territory.
    Thanks to anybody who will satisfy my curiosity.

    • Petunia says:

      I’m a foodie from NYC so eating out was normal for me. My NYC kitchen was smaller than the closet.

      The economics of upscale restaurants can vary from the legal to the illegal. I’ll stick to fine dining. The thing is too draw the right crowd, whether financial, legal, artsy, fashionable, etc.

      A chef or owner/manager with a good reputation from an upscale or successful place will draw big money to open another place with investor money. The object of the new place is to create enough of a presence to draw newer investors to expand the franchise. It’s just like a Silicon Valley IPO, you don’t need to make a profit, you need to sell at a profit.

    • Wolf Richter says:

      MC01,

      I should have been clearer: there are 8,000 “eateries and cafés.” So not strictly “restaurants.” The number of cafés in SF is just stunning. Everyone thinks they can successfully open a new café, within five minutes on foot of five other cafés. A lot of retail space is getting turned into cafés. I love cafés, but I don’t see how that many of them can make it.

      There is already a big shakeout underway in the restaurant scene. SF is an incredibly competitive market for restaurants. And the turnover rate is huge. Even many successful restaurants close when their 10-year lease comes up for renewal because the landlord doubles the rent and then it doesn’t make sense anymore. Some of my favorite restaurants did that.

      • Olivier says:

        About the prolifération of cafés, maybe that’s what happens when everyone catches the entrepreneurial bug? Cafés must be among the more affordable ventures you can start, esp. if the space was already a café before.

      • MC01 says:

        Thanks. It still sounds like you are drowning in eating and drinking establishments.
        Maybe you should consider shipping a few of them to Narbonne and Béziers because each time I sleep there I always have to make do with the hotel vending machine, which is invariably understocked…

        • MCH says:

          The eating business is brutal, I bet the margins are pretty thin and you are always riding the wave. If the economy goes south, then it’s over. In The South Bay, even good restaurants don’t last. And what I hate is all of these new developments with tons of high end stuff. I think those places are great when it’s on someone else’s dime… but I would never spend my own money there… their food is just not that special… the best thing about them is the plating.

      • Here’s how it worked for me. Underemployed, I opened a food cart. Great reviews, but for numerous reasons couldn’t get any altitude, so I sold out to the next optimists in line and recouped the investment. I feel like this explains a lot about our economy. People pour savings or borrowed money into ventures, and cut losses in the end. Rinse and repeat. Scaled way up, even mall builders are flailing against the current of money being sucked into Amazon and the other top e-commerce sites. The also-rans are desperate for returns, and flood to possibilities like rats from a sinking ship looking for a new boat. That explains (for me) why there’s such churn in the food scene in Portland (maybe SF too?). I wish I knew where to get stats on restaurant longevity over the last few decades, because my gut says it’s getting shorter not only because of failures, but because smart restauranteurs know the only way to do well in a flooded market is to keep getting that “new hot spot” buzz.

        • TheyKnow says:

          Well its always been that way, but that said, the old-school model of the family working/sleeping in the place, and the family working under the table, consuming food on premise and sleeping there, no wages, these types of places can exists 40+ years even in PDX.
          I think the problem is the Noveuax high end place with 40 employees and astronomic taxes to county for inventory, and equipment, and land/building. It’s impossible to make money.
          But if you willing to work for free food and lodging, and make $5/day equiv, then running a restaurant is doable.
          How about brewerys in PDX, even 10+ years ago it cost +1M USD just to get permits and meet the ‘code’, before you even brewed or sold beer.
          I do agree that most open the restaurant for the ‘dream’, but the quickly sell the equipment at a loss, and walk away with tail tucked.
          In summary, if you want to work 18 hours/day for min-wage, they go for it, otherwise run like hell.
          The people who make money are largely more the celebrity chefs that Willamette Week (PDX media) blesses, and its always the same recycled chefs getting blessed, which lets you know that inside investors are closely working with the media. But even this no guarantee of long term survival. Largely because people do get bored of ‘new food’ after a few months, so other than advertising tabloid printers, who else is really making money?

        • Willy Winky says:

          ‘even mall builders are flailing against the current of money being sucked into Amazon and the other top e-commerce sites’

          The amusing thing is that they are losing money on e-commerce because lo and behold they have to pay to deliver stuff to people whereas in the past people took care of the delivery using their trunk.

          Same goes for the returns of stuff.

          Fortunately, investors are willing to subsidize these losses, and in the case of Amazon, the taxpayer is helping out because they have massive profitable cloud business with the US government.

          If you distill this down to its essence, then e-commerce is not really any different than Tesla.

          Both are built on heaps of hype (that investors buy into) and subsidies.

      • Cashboy says:

        I am seeing the shopping high streets full of newly opened coffee shops in the UK.

        There is no way that they can all survive.

        I actually have a plan to buy the second hand Express Coffee Machines from liquidators or desperate proprietors for next to nothing, throw them in a container and ship them to SE Asia.

  17. Endeavor says:

    I watched a movie yesterday set in China. The scale of urban development with retail was stunning.
    Could our betters wants a China “West” here using the same formula of money creation and debt that has far outrun the ability of the current population to use it? Answers the why of open borders and other strange policies we are now seeing that ignores old fashion private enterprise needs like disposable income. Neither country has any democratic restraints as both are business states with slightly different ownership.

    • Willy Winky says:

      What is stunning are the ghost towns in China:

      https://www.youtube.com/watch?v=Ie6zd3Rwu4c

      And if anyone thinks that these properties were later occupied… needs to watch these two videos — entire towers and cities are abandoned and starting to fall to pieces:

      https://www.youtube.com/watch?v=XopSDJq6w8E

      https://www.youtube.com/watch?v=YPaGmv3SMUM

      We had a couple of JV businesses in China which we sold a year ago – our partner who was based in Shanghai was telling me that not long before he and his wife left (12 years in China – and he was getting really scared with respect to the increasing authoritarian nature of the government) he walked through one of these ghost towns…

      It was around 200 villas that was 3 years old. Almost nobody was living there – the houses were as to be expected – falling apart.

      • char says:

        There is a famous ghost town near Madrid, Spain. There are also a lot of rumours that a lot of high end real estate in London is not used. Amsterdam nocked down a whole neighborhood after 20 years. Lelystad is not exactly a success-story. There are the stories about Vegas and Inland Empire after 2008. Turkey at the moment with its village of fake French chateau’s And then there is Dubai.

        What one should remember about China is that it has a population of a billion and a half so a ghost town for 30.000 is a nothing burger and that everybody makes mistakes. (see for a costly mistake the high rise public houses that were build in Europe in the sixties, China can make a lot of mistakes to get to that scale.)

  18. gorbachev says:

    A big problem for retail is property taxes.Often they

    are several multiples of rent.I really don’t know how so many

    are able to make a living.

    • Unamused says:

      A big problem for retail is property taxes. Often they are several multiples of rent.

      Got examples? Of course not. It’s not true.

      Renters don’t normally pay property taxes. They’re paid by landlords, and in the US those are heavily discounted nationwide. You should have thought of that.

      Anarcho-capitalists have been whining about taxes forever and won’t be happy until tax collection has been privatised à la ferme générale so they can take a fat percentage. Until then, taxes are for little people and the rich have industrial-scale tax avoidance and evasion, public services cheap or free, subsidised by the middle class, and welfare for the wealthy.

      • Candyman says:

        I rent space for my retail shop, and guess what,I pay the property tax. I also
        pay can charges! My guess you have never owned a retail business.

      • robt says:

        Retail space renters either pay tax directly, or it’s included in their rent and the rent is priced accordingly. If the rent includes tax, landlords don’t pay property tax, they’re collecting it.
        ………..
        ‘Little’ (working) people pay almost no income tax relative to big earners. Including non-working ‘little’ people, their contribution is negative.
        The top 17% of earners (starting at just $100K a year and up) pay 80% of income taxes. (Within this category, the top 1% pay 40% of taxes).
        The middle 23% of earners ($50K to $100K/year) pay 15% of taxes.
        The bottom 60% of earners (less than $50K/year pay 5% of taxes.

      • R U Kiddin says:

        Property taxes in a mall are paid by the landlord, but the lease to the retailer includes a proportionate share based on his square footage.

  19. Petunia says:

    Online shopping is definitely growing versus the malls and I blame the mall owners. The diversity of shopping in a mall was zero, all chains, no local color. The upscale malls all had the same stores, as did the mid priced malls. Local stores which might have added something special were priced out.

    Since it’s easy for big chains to go online, mall owners not foreseeing the coming tsunami was just dumb. Chains retrench out of malls now because they can. They only need one store in a town to showcase their lines, not ten, they can push their customers to their website.

    The way to improve the malls and department stores was to diversify away from selling the same stuff everywhere. Now it’s too late, the marketplace has shifted. The future of retail is smaller stores and less of them, more local vibe.

    SF might throw developers a curve because the lifestyles of the techies that dominate there are unusual. They can afford high rents but their other spending is mostly electronics and experiences. They are also a very mobile group.

    • Deanna Johnston Clark says:

      Maybe I’m eccentric, but there is no fair trade or organic clothes to buy in my city. The virtue signalling Hobby Lobby that plays hymns all day has NO, repeat NO, section for fairly made or US products.

      This culture of the CHEAP that uses slaves has cost America what honor it ever had and ruined the union movement. Interesting, when the clothes were made by union garment workers in the US we all had plenty. We had it to spend because we had employment with decent wages.

      • Petunia says:

        Clothing labeled ethically sourced is mostly approved by organizations which take dirty political money. The whole ethically sourced movement is an extension of the other liberal scams like global warming/climate change. It is all about control over other people’s money.

        • Paulo says:

          Petunia,

          You might want to check out Australia’s fires this week. GW is not a scam in the slightest. There is a plethora of data to back this up….even in Florida.

          Although, many ‘green’ options are dishonest representations of themselves and our future.

          regards

        • R U Kiddin says:

          Please cite examples/names so that it is clear that its all a scam.

        • Petunia says:

          Paulo,

          You might want to check on reports the fires are caused by water being diverted by businesses. Also reports that the area with the fires was sprayed with some flammable stuff to make it burn hotter and help the climate crazies. These conversations are going on out there as well as the ones you are listening to.

        • Petunia says:

          rukidding,

          I’ll cite myself as a source. When I worked on Wall St., long ago, I was reading reports on how they were going to turn climate into a business selling tax credits and derivatives. I thought it was pretty crazy back then, didn’t think people were stupid enough to fall for it, I was wrong.

        • Petunia says:

          rukidding,

          Also at the same time I was reading the global warming as a business crap, they were already planning to take your 401K/IRA money if the need arose, through taxation or confiscation. I suppose you think they would never lie to you about that as well.

        • Wolf Richter says:

          Petunia,

          It’s critical to distinguish between the events that are happening and how some people want to profit from it by getting into all kinds of shenanigans.

          For example, the California wildfires that landed PG&E in bankruptcy court. As the events took place and before all the casualties had even been counted, hedge funds tried to profit from it. Now in bankruptcy court, it’s all about these hedge funds. Some of them have bought the debt, and they’re on one side and are clamoring for one type of outcome; the others bought the shares and made a deal with (bought) the lawyers representing the claimants against PG&E, also mostly hedge funds because they’re bought the claims from the insurance companies and individuals. And they’re on the other side.

          Whichever side will win, customers will get ripped off in two ways: equipment will get even shoddier and rates will go even higher, because those winning hedge funds will extract their pound of flesh.

          But none of this says anything about the wildfires or why they happened. It’s just hedge funds trying to profit from a given situation.

          The examples you cite are all about how different entities are trying to profit from “Climate Change.” And that’s true, there is a huge battle going on for these entities to suck the bejesus out of the system, one way or the other. But these shenanigans don’t say anything about “Climate Change” itself.

    • Some Guy says:

      Brick-and-mortar’s decline has very little to do with brick/mortar’s ongoing actions. They’re just continuing to do what they did (successfully) for ~5 to 6 decades starting in the 1950’s when automobiles became ubiquitous.

      The on-line shopping experience & economics are structurally different and in many ways structurally superior.

      The now-fully-acclimated-to-online-living consumer can find nearly any consumable or durable good (including most non-perishable food items) with a few clicks of a mouse. No travel time to the store, no parking, no wondering whether the exact item(s) are in-stock. Combine that with usually-lower prices, copious amounts of ‘real world’ reviews written by ordinary consumers, easy comparison price shopping, flexible options for shipping / delivery (a choice of destination addresses, speeds, etc.), fairly painless returns (assuming one doesn’t abuse the privilege) — there’s just not a lot of reason to continue going through the motions of brick-and-mortar shopping.

      The remaining motivators are pretty flimsy: sentimental attachment to the brick-and-mortar shopping process (which is also fading away because the Millenial/Gen Z sentiment doesn’t strongly gravitate towards “the mall experience”,) socio-economic idealism (i.e. trying to be a do-gooder by “spending locally,” and being able to browse & try on clothing in person (fading away as people get better-acquainted with their exact sizes/measurements which can facilitate online ordering.

      Fresh grocery retailers haven’t yet been hit yet because highly perishable foods & fresh vegetables require comparatively specialized handling both in transport and in storage/display. But with the ongoing march of automation — flying drones, and more importantly automated ground delivery (self-driving trucks and mini-car delivery,) it’s possible that even fresh grocery orders will become economical to handle & deliver. (A minimum of 5 years out, maybe 10 to 15 depending on the technological/regulatory adoption curve for fully-autonomous delivery.)

      • VintageVNvet says:

        You describe my buying habit changes very well. Including last week i ordered uncooked rice from the amazing place, formerly whole paycheck, and it showed up the next day… more vital costing place, now owned by Kroger, is increasing their food content constantly, and i hope that continues into more ”basic” and bulk items so that they become more competitive…
        Not quite ready to purchase all the fresh stuff that i prefer to put my eyes on, or even a hand on before putting into my cart, but even so, with the pace of advancement in communication that is continuing, i don’t think it will take 5 years for me to be able to have a tactile experience with the jalapenos, onions, potatoes, etc., especially with ”returns” being simple and free, as will certainly have to be the case.
        Envision taking a timed and dated picture of the tomato that just arrived damaged, sending it back to the online merchant, receiving an automatic credit instantly, etc., and that takes care of most of the problems, eh…

  20. David Hall says:

    Some local services moved into a mall: face rejuvenation, tax prep services, massage, hair salon, nail salon, eye glasses, AT&T.

    Doctors and dentists moved into malls and empty storefronts. With what they charge, they can afford the overhead.

    • RD Blakeslee says:

      “… they can afford the overhead.”

      Wealthy women buying wigs?

    • char says:

      The issue with those kinds of users is that they don’t create footfall. They solve part of the rent problem but not the people problem.

  21. John Beech says:

    How e-commerce moves has been mysterious for some, but not for me. For example, local Walmart Super Center stopped carrying my Folgers Breakfast Blend coffee. I approached the department manager, poor response. Approached the store manager, who deferred to dry goods manager who gave me a less than optimal response. Sigh.

    My response? I ordered off Amazon. Delivered to my door. And they offered to set up a subscription for monthly delivery. Haven’t yet but used a Sharpie on the container and wrote the date we opened it.

    Another example; our dog loves Greenies – treats for helping keep tartar off her teeth. Local Walmart stocks qty-11 packages. Forces me to return 3X/month. Smart, right? Nope because after buying the coffee off Amazon I checked into Greenies. Guess what? I started a subscription for qty-96 delivered every three months.

    Walmart has themselves to blame. So does JC Penny, Macy’s etc.

    • Deanna Johnston Clark says:

      Inventory by computer and sales is to blame. Long ago the customer would talk to a sales person who would tell the buyer: “We need to order more size 10 womens pumps because 5 women ASKED FOR THEM and we had sold out.
      The buying was based on sales AND customer desires. That ended with computers in the 1980s.
      That is why you had NOBODY to talk to and no manager to listen and hence, no Breakfast Blend coffee.

      • NothingGood says:

        Well… you can still do this with computers, probably faster if you track invatory and sales in real time per physical location, faster than any human could.

        If companies have been so mismanaged from their high on FED cheap money that they didnt pursue this, thats their fault.

        • NothingGood says:

          Whoops forgot to include: “and a way for people to ask for things via an app to see if its in the store (with a map of where to find it from the entrance of the store).”

    • Drater says:

      WalMart only allowed you to purchase one package of dog treats at a time? Very strange

    • David G LA says:

      I agree. My local Ralph’s is constantly out of : split peas, ham hocks and chicken thighs. it never ceases to amaze me. I’ve spoken with managers – they look at you like you’re crazy. Clearly the inventory software doesn’t work as promised.

  22. Foosball Hero says:

    In the case of San Fran and Los Angeles all malls should be required to turn vacant properties into temporary homeless shelters. The US has the highest retail sq ft/ consumer in the world. Time to start using all that space well.

    Happy Holidays

  23. Gershom says:

    Precious metals are surging again as the flight to quality appears to be accelerating. Jerome “Janet” Powell has dropped all pretense of being a responsible central banker, going from “rate hikes on autopilot” to slipping on his fishnet stockings and kneepads for his Wall Street pimps. Despite Powell turning the Fed’s liquidity hose to full blast, the problems in the repo market show no sign of abating and from most indications are getting worse in 2020, despite the Fed’s false assurances that the market would only need the extra liquidity through the end of the year.

    • Unamused says:

      the Fed’s false assurances that the market would only need the extra liquidity through the end of the year.

      They wouldn’t hedge the truth, would they? Why, that would be wrong.

      Liquidity can only compensate so much for excessive debt and markets maxed out by a growing chronic supply/demand imbalance caused by supply-side economics. How much? You’re about to find out, so buckle up. It’s going to be a bompy ride.

      • Frederick says:

        Yes they sure are and it’s making for a very Merry Christmas for us stackers I fully expect new highs in gold in the new year Silver has lots of catch up to do

    • Lisa_Hooker says:

      We have never seen “full blast” liquidity” — not yet.

  24. Old-school says:

    Read a good article today on the other network basically talking about the theory of price discovery.

    Bottom line is by printing money Fed is deceiving businesses to think that sustainable demand is there that is not and that it fuels investments that never should be made. Money printing fools consumers to thinking that their house and investment portfolio is worth more than it really is. The result will be when the illusion bursts the damage will be immense as the wealth and demand vanish all at once. Will be a very important time when that happens.

    I think we are being set up for a 70 trillion building of green energy. Its being sold as a double digit return on investment. If that is the case, the government will not need to do it. But I think it will be done anyway as a jobs program when the current bubble breaks.

    • Old-school says:

      Second good article was on Taylor rule. It says that 10 year should be 3% higher than it currently is. Whether Taylor rule is exactly correct I don’t know, but I think that gives you a hint at how hot Fed is running policy to get world jump stated.

      Can you imagine what things would look like with 5% 10 year and 7% mortgages?

      • NothingGood says:

        95% of IG would yield less than it, 30% of HY would yield less than it.

      • Unamused says:

        I think that gives you a hint at how hot Fed is running policy to get world jump stated.

        The Fed has had the pedal to the metal since the 2001 recession and all you’ve gotten for it is 18 years of slow growth and a real estate market that bubbled and burst, requiring even lower interest rates.

        The case could be made that the 2001 recession never really ended but was only disguised by an ongoing regime of low interest rates, same as the most recent recession, or current recession, depending on your marginal propensity for cynicism.

        All this suggests that the real problems have nothing to do with interest rates but are exacerbated by rates that are destructively low. And those problems are going to be swept under the rug because they’re not problems for the Fed’s profiteering constituencies.

      • Paulo says:

        Old School,

        Do you remember back a wee bit when a 7% mortgage would have been considered a wonderful opportunity for a new home buyer? And, those terrible times saw single-earner families, affordable vehicles, and a blue collar guy could afford to buy the occasional beer out and even smoke if so inclined.

        If the rates go up now that’s all she wrote, imho. This economy would be over. I lose money daily with savings, but it’s better than having no safety net at all, or depending on other people for help.

        • Old-school says:

          I am only 63 and I bought my first house for $48,000 with an adjustable rate mortgage and about 9.5% start rate.

          I think it got to 15.375%. My pay was $19,000 so about 2.5 × income. Seems like I had $400 house payment. One income. Wife didn’t work. 2 kids. I was too stupid to worry much.

    • Rcohn says:

      Government debt looks be growing at over 4% for the foreseeable future, while gdp looks to grow at 3% at best.
      Those numbers are not possible for protracted periods without a depreciating currency .

  25. Based on the final step, reversal of the overheated medium, according to the tetrad described in the Global Village, many things made obsolete earn a second life. Shopping is consistent with a return to ‘pedestrian’ values, bikes and scooters, and promenades which occurs when the motor highway system implodes, 700HP cars, climate change machines, stuck in traffic. We will gladly pay someone for the service of finding nice things, at good prices and vetting them for quality, albeit no guarantee they will have the same thing next week. (Trader Joe’s, ex) Amazon is not a retailer but a clearing house for suppliers. It’s like Christmas shopping at WW Graingers, if you wonder why the holiday season seems to lose its appeal. We will have all personal shoppers in a few years. Not now Alexa, I have a headache. Best wishes

    • lisa says:

      RE: “Amazon is not a retailer but a clearing house for suppliers.”

      Quite true.

      It is most probably fulfilling that function quite advantageously to minimize and eliminate any delivery and other time-loss-costs of “Amazon only” costs, as Amazon increasingly shifts all supply-chain burden and supply-chain-loss factors to any of the “retail independent suppliers” that still think they can make money from the “sales platform” that was never initially developed within any framework for any of the retail sellers best interests, or any interests really. Yes, Amazon fulfills the function of clearing out any of the competitors quite efficiently. Amazon just keeps increasing it’s share of any take to the point that there is nothing left except whatever is filtered only to and goes only to Amazon.

      Great line, as suppliers are starting to jump ship, not to any of their chagrin, or giggles! Their loss sure isn’t Amazon’s loss at all.

      Amazon deserves a real toast, for doing such a good job of clearing everyone else out of their market place.

      Cheers!

  26. Rcohn says:

    San Francisco faces far bigger problems in its real estate.
    Recently a tech convention moved to Las Vegas after being in SF for 20 years.The problems cited were threefold
    Cost-Everything in SF in very expensive except for real estate tax%
    Traffic and parking-this is hardly unique to SF , but it is certaintly a challenge in SF
    Homelessness , drug addicts and the associated cleanliness issues. For the last couple of years SF has hired workers at a total cost of $200,000
    per worker just to clean up the soiled streets .
    These factors among others lead to long term cycles of less demand for office space ; thus those who try to redevelop malls by building more office space will be disappointed.

  27. polistra says:

    I doubt that ecommerce is the main problem. Malls were already turning zombie in the ’80s, and accelerated in the ’90s.

    Maybe the problem is simpler and more prosaic. Big malls just aren’t a very good idea. They work well in some places, but they’re not suitable for most cities or locations.

    • Unamused says:

      Maybe the problem is simpler and more prosaic. Big malls just aren’t a very good idea.

      Or maybe there’s just more of them than can be supported, especially after decades of doodad accumulation and the inevitable pullback. I’ve been assured that people in the US park their junk in the garage and the car on the street instead of the other way around, and that a majority just want gift cards this year anyway, which is a stupid form of cash.

      I’m going to read A Christmas Carol by the hearth to some of the children and then QC this year’s schnapps. I’m told it’s really excellent.

      • Unamused says:

        A Christmas Carol was first published 19 December 1843, sold out on Christmas eve, and has never been out of print. Christmas was not widely celebrated in Britain before then and wasn’t commercialised in the US until the 1950s.

        Peace on Earth, good will towards all.

  28. Paulo says:

    Mall shopping strategy:

    1) Seldom go
    2) If there is no out? Bring a book or newspaper
    3) Wait out in the car with dog
    4) Don’t look at your watch

    options: A cold drink or coffee is great, but mind bathroom relief concerns

    Shade if possible

    Don’t look at your watch

    Remember: It is extremely bad form to start the car as soon as you see your ‘partner’.

    • Endeavor says:

      Paulo
      Similar to my list but I also count the ladies with tattoo’s who walk by.

      • Cashboy says:

        Endeavor,

        Cut your workload and count the ladies without tattoos.

        I wouldn’t date a lady with tattoos, I’m thinking of becoming a monk for free accomodation and food.

  29. Frederick says:

    Merry Christmas and Happy 2020 to all fellow Wolfers and the man himself Gold and Silver nicely bid today by the way

  30. Just Some Random Guy says:

    Merry Christmas Wolf and all the doomsday posters here.

    • Frederick says:

      Thank you Not doomsday rather reality day posters seems more accurate.We shall soon see.

  31. Nicko2 says:

    Peace on Earth and goodwill to ALL!

  32. raxadian says:

    The whole “Malls are dinosaurs of a bygone era” theme should be on one of your podcasts/YouTube videos.

    To sum up: Malls only worked on a era of cheap fuel were the “middle class” had money to expend and drove their cars everywhere.

    Once that era was over the mala that survived dis so for having good location and good promotions.

    But malls always had the problem that space was a premium and so always had fewer things and more expensive.

    We are on an era of cheap fueo but the middle class doesn’t have the koney to expend they did decades ago.

    Buying online is also so convenient, you get what you want, you can look over different brands and prices and you get delivered right into your home or were you want it deliver.

    Malls just cannot compete with that, more so thanks to Smartphones making people an app away of buying stuff online.

  33. House says:

    Me, Me, Me, Me!!!!
    I know the answer!

    Monster Truck Shows!
    Brilliant.

  34. Petunia says:

    Good tidings of great joy to all! Merry Christmas and Happy New Year.

  35. Old-school says:

    Wolf,
    You have given us all a wonderful gift of thoughtful articles each day and a quality group of virtual friends. Merry Christmas.

  36. Iamafan says:

    I hate to say this but no matter what you think of the micro management Brookfield does or dosen’t do, the stock price of BAM is high. That’s all that matters to many investors.

    Happy holidays.

  37. Iamafan says:

    Off topic again, but this will surely make your Christmas crazier than your cooking.

    Bloomberg isn’t letting up on repo.
    https://www.bloomberg.com/opinion/articles/2019-12-24/repo-oracle-zoltan-pozsar-claims-victory-even-if-fed-skips-qe?srnd=premium

    So why do you think the Fed needs to shift to buying long term securities or QE4?

    Can they just rollover the T Bill purchases as SOMA addons “forever” and keep the yield curve pointing upward? They can also do another operation twist and forego of the hoopla.

    • Fed REPO madness has achieved their goals? no QE4? therefore the stock market can go back down? What happens in a real crisis, DOW40K? REPO is hard to understand. Padding the resume of the president is something EVERY Fed chief does. Building Fed reserves provides money which Congress can use, and they write the rules on Fed, so call them doubly duplicitous. They ran to the ER screaming heart attack in Sept, when it was only indigestion? Too much Baklava and money laundering concerns in NE makes cutting off foreign repo a concern. How do you unravel the global banking cartel from your own pristine accounts? You don’t. So the EU gave passing nod to ending NIRP, for what reasons? NIRP would destroy Jerome and his tiny band of colonial banksters. US is losing sovereignty.

  38. lenert says:

    You can sleep in Armani but you can’t wear adequate, affordable housing.

  39. Gershom says:

    Treasury needs to design prettier dollars, so when the Fed debases the currency into near-worthlessness a la Venezuela, at least we can use our Federal Reserve Notes for arts & crafts since their purchasing power will be negligible.

  40. Bill W says:

    I have commercial real estate in n st louis county. Nobody wants it, this is the last year that I will pay the taxes on it. Each year this shithole county charges 5.81% of the value.
    What has the county done for me ?
    I didn’t know about the radioactive contamination in coldwater creek andthe landfill till I was 52.

  41. CreditGB says:

    I’m old enough to have witnessed the retail mall’s rise and fall. Early, they ran small shops out of business and were really convenient for finding most but not all of my needs. Home Depot filled the other shopping need for tools and hard goods.

    Oddly, the malls transformed into mostly weird style clothes stores, and the anchor stores that still had variety, started to disappear. Eventually, you could get weird clothes, candles, perfumes, and little else a the mall.

    In some areas, malls became gang hangouts, others were just left to sit mostly empty because they had nothing to draw customers.

    Owners need to look for better use of the land now.

    I enjoy visiting stores that I know have what I want. Wasted too much of my life wandering malls and leaving with nothing.

    • char says:

      Weird style clothing sounds like clothing targeting the young. They spend more on clothing and buy more units of it

  42. Paul Morphy says:

    Thanks for this article, Wolf.

    An awful lot of pension funds are invested in bricks and mortar. If there is an interruption/delay in the rentroll being paid, the pension fund has to absorb that hit.

    The move away from bricks and mortar investment by the likes of Macy’s means that pension funds need to find other vehicles in which to invest.

  43. char says:

    Shopping malls only work if they can generate enough customers for their shops. But the problem with most malls is that their footfall consist almost completely from people whose destination was the mall and not passerby. But those will be the big reason why shops will survive as selling things to people that are not planning to buy is much harder but it is where the profit is.

    In my opinion malls are on death row. They simply don’t work because their main shopper is somebody who plans to spend hours shopping. That shopper is not gone but the frequency people do that has gone down significantly and they purchase less. So the shopper that needs to kill 30 minutes before meeting at the movie theater or on a lunch break has become much more important for B&R retail but malls don’t service to those shoppers

  44. Cal says:

    6X6 San Francisco, “Six Floors, Endless Stories. Next Generation Retail Experience.”

    San Francisco, the only city where dogs outnumber high school students and the dogs step in human feces.

    San Francisco, my home town, is like a beautiful woman suffering from insanity and with a huge bleeding tumor on her face.
    Until the people rebel and vote out the political parasites in city hall, until the city policies of free everything for the least productive and most destructive change, that mall and other related things will sit empty.

    • char says:

      SF has a reputation that the homeless are people who have a job and not a substance abuse problem but can’t afford rent It could be solved by the government building a lot of rent controlled housing but you are right that the current politicians in city hall wont do that.

      ps. That mall will sit empty as long as SF does not make internet illegal, and i don’t see that happening. B&M retail is just in a severe contracting phase in for which politicians are almost completely innocent.

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