Jingle Mail Haunts Commercial Mortgage-Backed Securities as Property Values Get Slashed Below Loan Amounts

At the time of securitization into CMBS a few years ago, inflated collateral values led to soothingly low loan-to-value ratios. Then trouble hit.

By Wolf Richter for WOLF STREET.

What options exactly does mall-REIT Washington Prime Group [WPG], now reduced to a penny stock, have when another one of its malls, the 850,000-square foot Oak Court Mall, anchored by Dillard’s and Macy’s, that was once upon a time the premier mall of Memphis, TN, has trouble making the mortgage payment? The mortgage is secured by the mall property, and if push comes to shove, the landlord can just let the lender have the mall and walk away. Jingle mail. But in slow motion.

The 240,000-square-foot portion of the mall that contains the Dillard’s store serves as collateral for a $35.6 million mortgage that has been packaged into commercial mortgage backed securities (CMBS), and investors own them. The expiration date of Dillard’s lease was back in August. Dillard occupies about 21% of that portion of the collateral.

That 240,000-square-foot portion of the mall – the collateral – was valued at $61 million in 2014 when the mortgage was packaged into a CMBS. At the time, the loan-to-value ratio, given the $35.6 million loan and the $61 million value, was 58%, and investors felt very secure. How can you lose money on something like this?

When the mortgage was rolled into CMBS, it was split into two slices: a $21.4-million slice was packaged into one CMBS [WFRBS 2014-C21] and accounts for 1.82% of it; and a $14.3-million slice was packaged into another CMBS [WFCM 2014-LC16] and accounts for 1.61% of it. Wells Fargo is the servicer of both CMBS.

Then came the brick-and-mortar meltdown starting in about 2015, and then came the Pandemic. Wells Fargo sent the mortgage to a Special Servicer to deal with the issues at the mall. The Special Servicer has agreed to enter the mortgage into a forbearance agreement, rather than marking it as delinquent. The mortgage matures in April 2021, when the balloon payment for the entire amount comes due ($35.6 million).

The new appraisal, commissioned by the Special Servicer, has now slashed the value of the collateral to just $15 million – less than half of the mortgage balance, according to a note by Trepp today. But the entire mortgage of $35.6 million is due in April.

You can see the writing on the mall, so to speak: future jingle mail. No way that anyone would pay off a $35.6 million mortgage on a $15 million property.

Trepp, which tracks CMBS, by digging through the Special Servicer notes, has found nearly 100 jingle-mail candidates with CMBS loan balances totaling $3.9 billion, as of October 21. This includes 40 hotel properties, 42 mall properties, 5 “mixed use” properties, and 7 other property types.

The list contains borrowers that have discussed with the Special Servicer to voluntarily turn over the property to the lender (a “deed-in-lieu” of foreclosure), to head off foreclosure proceedings, but whose properties have not yet been foreclosed on.

A deed-in-lieu is a document, signed voluntarily by both borrower and lender, that transfers the title of the collateral from the borrower to the lender, in exchange for relieving the borrower of the mortgage debt. A deed-in-lieu avoids the long-drawn-out and costly foreclosure proceedings.

Discussions of a deed-in-lieu can also be used as a negotiating tactic by the borrower to obtain better terms of the loan, and a deed-in-lieu discussion in the Special Servicer notes does not necessarily mean the property is going to be turned over to the lenders.

Trepp cites a jingle-mail candidate on this list: the $76-million mortgage backed by the 448-room Hilton Houston Post Oak, in Houston, TX. The hotel was built in 1982 and renovated in 2014. It had a listed value of $126.1 million when the mortgage was securitized into a CMBS in 2014, just as the oil boom was peaking. Then came the oil bust. Then came the Pandemic. In May, the mortgage was sent to a Special Servicer, which commissioned a new appraisal. In October, the new appraisal came out: it cut the value to $57.5 million – below the amount of the mortgage ($76 million).

Trepp found in the Special Servicer comments that starting in August, the collateral was noted to be “likely DIL” (deed-in-lieu).

What these jingle mail candidates have in common are these factors: Collateral values that now appear to have been inflated when the mortgage was securitized a few years ago; risks concerning the mortgage payments or the balloon payment, which sends the mortgage to the Special Servicer; a new appraisal commissioned by the Special Servicer that slashes the value of the collateral substantially below the loan amount. At which point, the whole calculus falls apart for the owner/borrower, and it’s time to let the lender take the collateral and let the lender figure out what to do with it.

Commercial real estate is in turmoil, but San Francisco’s glut is dwarfed by the fiascos in Houston and Calgary. Read… How Fast Can a “Shortage” of Office Space Turn into a “Glut?” San Francisco Shows How Fast

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  125 comments for “Jingle Mail Haunts Commercial Mortgage-Backed Securities as Property Values Get Slashed Below Loan Amounts

  1. MiTurn says:

    Our local mall is toast (“It’s dead, Jim”), now that JCPenny closed. But it had long been a dead-mall-walking. The only reason people go to the mall anymore is 1) the Dollar Tree outlet; 2) a vape shop; and most importantly 3) the county motor vehicles office moved there (cheap rent, I suppose).

    It’s sort of a scary place now. Empty, ominous, and all the windows of the empty shops plastered with leasing information.

    Thank goodness for Amazon.com!

    • Cas127 says:

      Thank goodness for Dollar Tree.

      • Thank goodness for China.

        • Cas127 says:

          China (like alcohol) both the cause of, and solution to, all our problems.

          Hat tip, Homer Simpson.

        • M says:

          I bet that you will not be saying that in five years. We are all purchasing consumer goods made in China.

          They are giving us such subsidized, bargain prices primarily on a lot of cheap goods, so far, thank god. However, now comes the time when they will rapidly get into a position to crush most of our industries: e.g., Boeing cannot sell planes if it must compete against CCP funded industries, getting zero interest loans, getting key materials (such as cheap, rare earths or steel) at ultra low, subsidized prices, able to pollute without any restrictions, and employing quasi-slave labor which cannot unionize nor get even the limited relief for injuries provided by workmen’s compensation or other legal systems.

          Xi has liberated their nuts of which he might be one, who apparently now look at their neighbors the way that Stalin or Hitler looked at their neighbors. Their South China Sea bases “coincidentally” enable them to embargo shipping to Japan and South Korea.

          If Taiwan falls, Japan and South Korea can definitely be effectively embargoed: dozens of airbases based on Taiwan and/or its islands can defend themselves and threaten all shipping to Japan or South Korea. Given the CCP’s exporting of its system of closely monitoring and personally oppressing each one of its citizens, the resulting world might not be a pleasant place if the Japanese and South Korean governments were controlled from Beijing.

          During World War II, Japan actually lost the war when the US was able to invade and occupy the Philippines, which were at an earlier point in its supply lines. It faced imminent famines as US planes could obliterate its remaining shipping after the Philippines were taken. (Japan then controlled Taiwan, but the Philippines’ location (and the range of US airbases located there) meant that its shipping, e.g., carrying it oil, could be sunk before it ever got to the area around Taiwan.)

          Thus, like Cas127 said, China is both the cause of and (so far) has been the solution to our problems (by enabling us to keep our standard of living by giving us cheap, subsidized goods.) Soon, it may no longer be a solution to any of our problems: e.g., its computing initiatives are very well funded, so if they are able to steal or build on their own a higher-level quantum computer, all of these digital currencies that have taken over the financial world recently can reportedly be cracked and digitally taken/”stolen” by their government-linked “hackers.”

    • nick kelly says:

      ‘When the mortgage was rolled into CMBS, it was split into two slices: a $21.4-million slice was packaged into one CMBS [WFRBS 2014-C21] and accounts for 1.82% of it; and a $14.3-million slice was packaged into another CMBS [WFCM 2014-LC16] and accounts for 1.61%’

      The % of those slices seem small. Are they from a larger number than 35.6 million?

      • RightNYer says:

        No, the percentages are of the securitization as a whole. Most CMBS issuances are around $1 billion total, so those numbers sound right

      • Wolf Richter says:

        nick kelly,

        Most CMBS have many slices from different mortgages backed by different properties. So one CMBS may be backed by retail, hotel, office, apartment, industrial, etc. This diversification is why CMBS investors didn’t feel too much of a panic about the brick-and-mortar meltdown before Covid.

        But there are single-issuer CMBS, where the entire CMBS is backed by just one big mall. They were a problem even before Covid. We covered this in December last year:


        • Seems like the system works, risk in CMBS is spread out sufficently to prevent a meltdown in paper asset values. The owners have no incentive to foreclose, and the banks extend and pretend.

      • VintageVNvet says:

        Clearly that is the case with those percentages, nk.
        The problem there is the pronoun, ” it ” which refers in this case to the entire CMBS, not just the property referred to in the info above.
        Wolf’s explanation added below makes this and the rest of this article much more clear IMO.

    • WayGone says:

      Sounds like Ponderay, ID?

    • Morty Mc Mort says:

      Turn the Malls into “Condo Slums” – heard this for the first time from a Venture Group CEO – One of the Biggest Condo Developers in the Nation. Has a problem… Condo Tower gets units sold mostly to investors.. who turn them into Air B&B or equivalent.. units have constant turnover of party animals.. tenants that don’t care etc.. existing unit owners who Live in the building get fed up and leave… Downward spiral..
      We looked at eachother… I said “Wow.. what if the slums of the future.. are Condo Towers? – He got a far away look in his eyes..YEah..” you may be right….

    • wiley says:

      Yep!Rockford,IL lookslike apocalyptic ghosttown!Thisoverbuilt commercialproperty is everywhere.Therewillbe muchmore!Who wantstotalk re:FED checkaccnts?Directaccess2info/deplatfoming/tracking U via digicurrency and onestep closer to killing banks!

  2. Alberta says:

    As Lucille Ball would exclaim,

    when caught f*cking up ….


  3. Memento mori says:

    It’s looking like we are going to imitate Japanese conjecture for the foreseeable future.
    I wonder if there are any good studies out there as to how Japanese real estate commercial and residential has performed under years of QE by BoJ?

    • Floris says:

      I would definitely recommend reading the book of Richard Koo: “The Other Half of Macroeconomics and the Fate of Globalization”. He is the creator of the concept of balance sheet recessions (at least, he claims to be). The book is very readable and contains a lot of information on how Japan (and US and EU) has fared under monetary and fiscal policy changes.

      It doesn’t contain a graph (at least didn’t find it this morning) how CRE and RRE has performed under QE policy changes.

      Since this is my first post, big thanks on Wolf Richter for this great site!

  4. MonkeyBusiness says:

    20 years from now …..

    “Mommy, what’s a mall?”

    • Dano says:

      The smartest local governments out there will be the ones that will expedite re-zoning malls and rapidly deploying building permits that will allow them to be turned into anything else. This cannot help the mega-malls, but smaller strip malls could be remodeled into townhouses, rehab centers, nursing homes, etc. Or just torn down for more residential living space.

      Tax bases are dying. And if you can’t get money out of that commercial real estate, localities will just keep raising property taxes on residential homes.

      I haven’t heard of any government layoffs or cutbacks. And therein lies the problem for all real estate — you’re a sitting duck for the tax man.

      A true story here: years ago I had a friend who bought a 39 unit courtyard U-shaped 3 story brick apartment building in Chicago. Every year he reinvested some money into remodeling 1-2 units as they became vacant. Every year he raised the rents by what the market would bear. And… every year the city would raise his taxes by just sbout what he had raised the rents and spent on upkeep and remodeling. At the end of 6-7 years he sold out—no further ahead than when he started. But he was lucky enough to get all his money out of it. Now? Who knows.

      • Richard says:

        The entire US economy is like this – every spec of profit to be made is sucked out via taxes before it is even realized.

        The only people who make it out ahead are those with connections that can leverage massive amounts of debt and investor cash (aka Amazons, probably the only man left standing after this depression).

      • Cas127 says:

        “And therein lies the problem for all real estate — you’re a sitting duck for the tax man.”


        Refugees from time immemorial have looked to portable wealth like gold and diamonds.

        Tax refugees in waiting are going to learn the same lesson.

      • Thomas Roberts says:

        Malls don’t take up a significant amount of a cities area though. They also may or may not be located in prominent land, the difficulty is what that land will be used for considering office buildings are in decline. Here in Midwest, most malls are right next to the highway and would make a pretty terrible place for housing. Sometimes the anchors own their store as well.

        Stores, restaurants, and entertainment (arcades, theatres, and the like) are mainly the only suitable things for most mall areas.

        Some could though be turned into apartments and condos, what % though is hard to say.

        • Cas127 says:

          “pretty terrible place for housing.”

          Shave 20% off grossly inflated rents during last 20 yrs of US income stagnation (at best) and people will “endure” the “hardship” of living within a quarter mile (mall parking lot moat) of a freeway.

        • char says:


          the problem is not renters but mortgage providers. Those places are the first to become empty in a bad market

        • Cas127 says:


          Actually, this is a very interesting, very debatable point…not least because it is analogous to home pricing (and thus new home inflation)

          Namely, who is less likely to vacate an apt or default on a house…the high flyer paying the higher rent/mortgage (thanks to ZIRP) or the party paying *less* for rent/mortgage.

          It is pretty clear that home builders and apt developers have bet on the high flying, maybe-higher-income crowd for the last 20 years.

          Ignoring affordability, seriously.

          For me, than is a monumentally aggressive, borderline stupid move, designed mostly to exploit ZIRP and blow off 80% to 90% of the possible mkt.

          As with automakers, home builders seem happy to sacrifice sales volume in exchange for premium pricing.

          This seems to be something new in US history, since this attitude toward revenue maximization thru supply restriction would have led to many, many fewer homes/cars than has historically been the case in the US.

          I wonder if it is a function of excessively low manufacturer competition (a bit hard to believe for home building, but maybe.)

        • char says:


          rents are for a much shorter period so people who say pay $1k per month will move to the better places when they lower rent from $1.2k to $1k so the emptying out of good renters with such areas is a much bigger problem

      • MonkeyBusiness says:

        Don’t worry. Malls might be dead, but they’ll be replaced by Bezos’ Lifestores, Bezos’ Funlands, etc.

        Kids know that the benevolent President Bezos will provide for them. Heck, their parents can’t be wrong right?

      • wiley says:

        Unless Fed govt. Gives$2state/localgov.s,you will Very quickly see bankruptcies,services/positions slashed ala2008.Hospitals been slashingjobs,heard Cuomo cut medicaid or some important service/program,IL talk of gov.cuts while funding”equity” whatever and probable increase in taxes.Convert malls into solarpowered/miniwindmill microcities with Truly affordable rent!

    • GK says:

      The youngest kids don’t know now.

      5-years tops.

  5. Nik says:

    Gosh..to misquote the late great Yogi Berra “Its Collateralized Deja Vu all over again” lolol aloha amigos

  6. David Hall says:

    In the late 80’s almost 1000 S&L banks had became insolvent, in part due to commercial property mortgage defaults. The Resolution Trust Corporation was formed by the Feds as a holding company for defaulted properties until they could be auctioned off. They paid apartment management staff until the complex was sold. Office buildings in outer suburbs were empty for years before being filled with tenants.

    • Lisa_Hooker says:

      And I believe it was all supported by the US taxpayers courtesy of the US Congress. One of the first major taxpayer bailouts of private sector malfeasance.

    • Jdog says:

      The difference between now and then is that most of the money that stands to be lost now are in pension funds, and bond funds, not financial institutions.
      I somehow doubt the government is going to step in and do much to help the common people who are going to get their pensions and 401K’s monkeyhammered by this…. Oh well, more incentive to work harder and longer….

      • Sierra7 says:

        Lisa Hooker and Jdog (and others)
        The “difference” between now and back then is scores of the muckety-mucks went to jail! And, four US senators were badly “damaged”.

        Bottom line: The US is heading for a “rick-shaw” economy begun at the onset of “globalization”.
        Enjoy the “Free-Market” economy!
        You too will be devoured!

  7. Tony22 says:

    This is why office buildings are not easy to convert into living units, beside the infrastructure. The SEC is not equipped to become your landlord.

  8. Cas127 says:


    You put your finger on it, but didn’t stab hard enough for most of the public to really get it.

    Valuations in CRE are directly related to comps and, really, discounted cash flows based off the rent rolls (with the comps really just valued off *their* discounted cash flows of their own rent rolls).

    The problem(s)…rent rolls can change radically based on future conditions and, much, much, much more importantly for our 20 year morass, DCFs (discounted cash flow stream calculations) are very sensitive to relatively small interest rate changes (see 20 years of DC ZIRP).

    So, yes, the valuations (and therefore the loan-to-value ratios meant to be a security blanket to self deluding lenders) were hugely inflated.

    But mostly because of ZIRP.

    Covid vacancies would have always led to valuation resets, but it was ZIRP that drove the valuations to the height of stupidity in the first place.

    In the name of “saving the economy” or achieving some Krazy Keynesian Konkept of an optimized aggregate demand trend line, DC has gutted interest rates (via $ printing), destabilizing the valuations of *all* assets (not just CRE).

    If the interest rate (ZIRP’d) in the DCF calculation is fictional, all the valuations of the DCF are going to be fictional and therefore volatile (because poisoned Kool Aid demand tends to vary across time and buyer).

    • Paulo says:

      Great comment Cas 127

      Zirp has been a nightmare as it finally plays out in particular sectors. There seems to be just too much of everything so no one is making any money, including savers!!. Free credit led to building and investment excess. And now with online?

      We have a mall in our nearby town. It was repurposed a good 10 years ago as an RV and boat storage compound. In fact, it has proven so successful they had to expand it. There are a few stores left, but the only busy one is the Dollar Store.

      • Cas127 says:

        “as an RV and boat storage compound”

        Actually, not a totally insane re-use…empty malls for anything requiring indoor, climate controlled storage. Of course, the initial cost of land was vastly over paid for (storage Rev streams can’t compare with theoretical retail revenue streams) but mall owners are in survival mode.

        Of course, malls are vastly over-engineered (at significant cost) for that purpose…but at least the modification costs are possibly reasonable (just wheel boats into empty individual retail bays…ceiling height issues?)

        Or maybe I am just over-thinking this and the owners are simply renting out their vast, now empty parking lots.

        • Thomas Roberts says:

          In the Midwest and probably most of America, malls are usually located next to highways, often on the more prominent exits into that city. For these malls, cities are unlikely to allow the first sight into the city to be a RV and boat storage. The other malls are located in usually prominent spots inside large cities and could be turned into parks and housing.

          The large majority of malls need to be replaced with something aesthetically and socially pleasing.

        • Paulo says:

          Actually, they took the back parking lots and built huge storage buildings, (just metal clad iron work so pretty cheap), and large fenced in storage yard for stuff than can be outside. None of it is really visible from the roads or other properties. One large space went to serve as our local BC Hydro engineering office for the entire North Island…it used to house Sears. There is also a UPS store and a few BS attempts to keep others going.

          It was pretty savvy in design and roll out. So many folks live in Condos with ocean views, etc, but had no place to park RVs, etc.

          The parking lot contains most of the property to use. All one has to do with the mall space is get it to limp along and pay the utilities.

    • char says:

      There is no ZIRP. It is not policy that makes interest rates to be zero but to much capital searching for investment. Thy claim it is policy because admitting the truth that the market is forcing zero interest-rates is to hard. We are in ZIRE, not ZIRP

      Also Keynsian is state spending to get the economy going. ut state can’t spend money because that it may end up with the average man and that can’t happen

      • Jon W says:

        But there is a mechanism to correct for excess capital (asset price reduction – aka crash). However the central bank’s ZIRP and QE tools are preventing that from occurring. We are in a bigger recession than the GFC and asset prices are going up!

        Also the CBs created the excess capital in the first place by not allowing the required losses during the last 20 years of bubbles in asset prices, and not regulating the banking sector.

        Ask a CBer and they will say they are just following the market. Ask a banker and they will say they are just following the CB. Truth is they are on the same team and it’s not team worker bee.

        • char says:

          Asset prices are not going up if you include future expected inflation. The massive amount of money that is being printed because of the Covid economic crisis will lead to inflation, or at least that is the expectation.

      • RightNYer says:

        I wholly disagree. If ZIRP was driven by the market, there would be no need for the central banks to constantly be printing and buying up assets. They’re doing this SOLELY to suppress market rates. It works for a while, until the central banks lose control TO the market.

        • Jdog says:

          Take some time to study the 7yr yield vs. Fed actions. You will see the Fed follows the market, it does not dictate to it. It claims to have the power to control, but it is just jawboning. It is a con, but it has been effective in the recent past. We will see how effective it is when the SHTF.

      • Happy1 says:

        The Fed is literally purchasing trillions of assets, there is no true open market for debt instruments, so yes, there is “zirp”, take away the Fed actions and interest rates would be substantially higher.

        • Jdog says:

          The Fed owns about 12% of treasuries. That is substantial, but it is not enough to dictate rates. The fact is the treasury market is flooded with cash, and that is what is driving down interest rates.

        • RightNYer says:

          I think you underestimate how much 12% really is.

      • No Expert says:

        1st paragraph 100% agree, the tendency for the rate of profit to fall is what’s behind the curtain for anyone who cares to look. Rate of profit has been falling since the golden age of capital in the 1960’s, 20 odd year reprieve from neoliberalist reforms (read: crushing wages and the natural environment to extract the last fumes), then heading back towards zero. Dun Dun Dun.

    • Crazy Chester says:

      Re:  “You put your finger on it, but didn’t stab hard enough for
      most of the public to really get it.”

      My guess is not hard enough to see it bleed because then you would see there is no longer a financial clotting mechanism to stop the bleeding.
      As a result, lots of investing folks are hiding behind Covid as causation when in truth Covid is mainly an accelerant exposing hollow financial decisions dating back decades but manifesting in the mid 2000’s as a failure to make a generational adjustment haircut to our standard of living, preferring the false comfort of extend and pretend with its aggravation of wealth inequalities.  

      Phew!  I’m exhausted just from typing about the coming misery.

      The recovery – which will, of course, ultimately come – will get here oh so slowly that most of us aging out while reading this post will probably never see it fully.  Pity as there is so much to do, so much promise just around the corner and so much honest money to be made.


      “If the interest rate (ZIRP’d) in the DCF calculation is fictional, all the valuations of the DCF are going to be fictional and therefore volatile.”

      “In that direction,” the Cat said, waving its right paw round, “lives a Hatter: and in that direction,” waving the other paw, “lives a March Hare. Visit either you like: they’re both mad.” “But I don’t want to go among mad people,” Alice remarked. “Oh, you ca’n’t help that,” said the Cat: “we’re all mad here. I’m mad. You’re mad.” “How do you know I’m mad?” said Alice. “You must be,” said the Cat, “or you wouldn’t have come here.”
      — Lewis Carroll, Alice in Wonderland, Chapter 6, Pig and Pepper.

      There is a moment right at the top of a good roller coaster ride when there is a slight pause and you are momentarily calmed by a wonderful view of the fun land below and how it fits into the horizon beyond.  I am inhaling deeply, taking this view in clearly;  I want to have a strong memory because I don’t think I will have the time nor be able to afford the ride a 2nd time.

      A prescient post.

      • ML says:

        I have long reasoned that valuers Generally value back to front. They base their opinion (valuation) on what others have agreed. Whereas what they should do is form their opinion then cast around for evidence that opinion can be supported.

        The back to front approach means others always go first. The property in question merely follows suit.

        Generally valuers have lost the ability to value.

      • kitten lopez says:

        i love your Not-So-Crazy-Chester thoughts… pure poetry. read it three times just to come up on that roller coaster feeling again and agai…

      • VintageVNvet says:

        Great quote cc,,, thanks for the reminder,,, will have to chase down a copy once again, likely at least the beginning of awareness for many, eh??
        Sometimes, the best quality drugs produce the best awareness, for sure; unfortunately, sometimes the best drugs produce the most desire to just get it all over with and asap.

  9. 2banana says:

    Does a lender really want the headaches of property taxes, insurance, maintenance and collecting rents? In a dead mall walking?

    Take the haircut and move on.

    “Discussions of a deed-in-lieu can also be used as a negotiating tactic by the borrower to obtain better terms of the loan, and a deed-in-lieu discussion in the Special Servicer notes does not necessarily mean the property is going to be turned over to the lenders.”

    • Cas127 says:

      “Take the haircut and move on.”

      When the haircut is a decapitation, lenders may have no choice but to try and struggle through redevelopment.

      • Beardawg says:

        I have taken residential properties Deed-in-Lieu and had to throw a lot more $$ into them in order to get out of a bad situation. I realize it does not correlate to commercial RE but I learned the hard way why banks and investors prefer to NOT be in the business if property development / management. Jingle Mail owners will generally seek a new Buyer.

  10. TownNorth says:

    This is headed to Resolution Trust Corporation 2.0.

    Zero interest rate policy is complicit in the risk-taking, yield-seeking-at-any cost strategies. Real estate prices at yearly new highs allowed debt at new highs. This pairing is not built to withstand downturns.

    • polecat says:

      All the current, and past living heads of the supposed Federal governmental ‘regulatory agencies’, their K-Street ‘booster/earwormers’, and ALL complicit Congressional Senators/Representatives should be slamming rocks in BUBBA’S POUNDING PRISON for how they’ve maligned the citizens of this country over the last 30+ years! Yes, we’ve constantly been swayed by their siren calls into believing their media enabled and bought lies .. but still, they swore to uphold what many believe a sacred oath to constitutionally keep things right by the republic, and within that realm, the public at large. They haven’t. We haven’t been.

      It looks increasingly like the pus is going to be squeezed from the blacken, necrotic sore sooner as later!

      The puss-people won’t like it. At All!

      Oh … and let’s not forget the needed real retribution of those cushy corrupt banksters ..

      right Jerome?

  11. John V says:

    It all goes back to the unwinding of the Glass-Steagall in the late 90’s. If only they hadn’t messed with it their House of Cards wouldn’t be collapsing now. I believe that was Reuben’s little project under Pres.
    Clinton. If it ain’t broke, don’t fix it. FDR put it there for a reason and it may never be put back together again. Those in power have no reason to do so, they’re cleaning up….for now.

    • Bet says:

      The dismantling started under Reagan
      Phil graham helped

    • Happy1 says:

      This has way more to do with the Fed artificially suppressing interest rates. Assets are in a Fed induced bubble. There would never have been a market for this debt instruments without the Fed.

    • pogohere says:

      “Consequently, the argument for Glass-Steagall advanced by Tabarrok is compelling. Taborrak (1998) makes a convincing case that the real reason for its passage had more to do with the Rockefeller banking group seeking to weaken the House of Morgan, a banking rival. JP Morgan was much more involved in investment banking activities than Rockefeller’s banks, notably National City (which later became Citibank). Winthrop Aldrich, Chairman of Chase, who, as the Times noted, “is a representative of the John D. Rockefeller interests,” (his sister was married to John D. Rockefeller, Jr.), lobbied extensively for passage. The ratification of Glass-Steagall led to the break-up of JP Morgan and Company into JP Morgan and Morgan Stanley.”

      from: “https://www.watrust.com/downloads/wealth-management/whitepapers/Whitepaper-GlassStegall.pdf

      “In 1933 Roosevelt signed the Glass-Steagall Act that insured bank deposits and separated insurance from commercial banking and stock brokerages to avoid concentration of financial power.

      The only major New York bank that encouraged Congress to pass the Glass-Steagall Act was Rockefeller’s Chase Bank. Chase chairman Winthrop Aldrich was the son of Senator Nelson Aldrich, the same Senator Aldrich of the infamous ‘Aldrich Plan’ that became the core of the 1913 Federal Reserve Act.

      Winthrop Aldrich strenuously lobbied Congress to pass Glass-Steagall, despite the strong opposition from Morgan and other New York banks. Unlike J.P. Morgan, the Chase Bank had become the world’s largest deposit bank largely through extending traditional loans to the circle of Rockefeller companies such as Standard Oil. Chase was less dependent than Morgan on the underwriting of international bonds or the speculation in buying and selling of stocks. –

      The Rockefellers conveniently put the knife in the back of their Morgan rivals when they were weakest. Chase emerged unscathed from the Congressional investigations into bank improprieties by the Senate Banking Committee, and the bank was prominently profiled as a ‘friend’ of the New Deal, a rarity in a Wall Street milieu in which Franklin Roosevelt was scornfully referred to as a ‘traitor to his class’ for his speeches attacking Wall Street greed and corruption, calling them ‘economic royalists.’ Traditional conservative Wall Street bankers regarded Roosevelt’s depression relief measures, such as the National Recovery Administration, as a giant step to Bolshevism.”

      Chap 6: “F. William Engdahl – Gods Of Money: Wall Street and the Death of the American Century – 2009”


      • Sierra7 says:

        Nice post!
        I also agree with others that the crushing of Glass/Steagal was a huge step into the abyss of mass speculation without boundaries.
        The birth of the death of “mark-to-maket” rules in 2009 was another death blow to “financial reality”.
        Gore Vidal:
        “The United States of Amnesia” is very apropo for what we are living thru and what is coming…….a deep financial abyss that will crush the life out of the meager social amenities and labor supports we still have.
        You want “free-market” capitalism without restraints?
        Then prepare to be drawn and quartered, devoured and spit out into the rest of the fouled environmental pit that has been dug by just those same forces.
        Tick-Tock, Tick-Tock, Tick-Tock…………………….

  12. nick kelly says:

    Related: Interesting bit over on ZH about ‘secured loans’ where the haircut is up to 99%.

    Creditors Finally Wake Up To An Apocalyptic Reality: Bond Losses As High As 99%

    The real bad ones were cov-lite bonds secured by biz not RE mortgages but instead of the usual 25 -30 % recovery, they are getting pennies. Names like JC Crew etc.,

    Re: Zoohedge, I am willing to run a ton of their gravel thru the sluice for a few grams of gold, but DON’T read the comments. You’ll want a shower.

    • Paulo says:

      Shoot, I’m glad I finished your comment before I fired off my question asking if you read the ZH comments? People even sign some of them Q.

      I read them once in awhile just to see how close to collapse we are. :-) We’ll know more next Tuesday about that one. maybe.

      • Mark says:

        I read ZH to laugh over the misspellings, often even in the headlines, if you can believe it .

        The complete lack of English grammar in ZH articles results in an incredible number of funny moments, if you want to view it as that.

        • Wolf Richter says:


          As many readers and commenters here can attest to, you will not be disappointed here as I make sure that there are always plenty of such “funny moments” here too ?

        • Sierra7 says:

          I go to ZH almost every morning to see how insane the “traders” are and how bad “American Print” can get. The comments are a blast….and some of the most vile on the internet.
          Mr. Richter’s site is like when the sky is blue; ZH site is like when the air is loaded with locusts!
          I guess I could have said I go to ZH for entertainment and to this one for a bit of learning……every day!

      • FluffyGato says:

        Most of the comments are from bots and provocateurs, not dissimilar to Twitter, which should be fairly obvious.

        Still reading comments over there is only for the purpose of confirming one’s own confirmation bias.

  13. Stephen C says:

    The one good thing about Zerohedge, at least years ago, was that is where I discovered Wolfstreet.

  14. Mr Wake Up says:

    In Manhattan underwriters are no longer taking into account ground level retail space weather occupied or not.

    • Questa Nota says:

      There is that new ground-level peaceful protest discount factor to incorporate, adding injury to insult.

  15. polecat says:

    Just think of All those lovely pending relics, both low and high – from new-age calacombs .. to hanging high gardens, in the making.

    Wonderous they will say ..

    • Cas127 says:

      “from new-age calacombs”

      Another possible mall re-use…climate controlled mausoleums…”She always loved shopping…”

      Only sorta kidding…

      • polecat says:

        Yeah, that works ..

        Catacombs = Catacombs …. sigh

        Whatever wunderkund created Autocorrect should be intombed in one!

  16. Seneca’s Cliff says:

    The way things are going ,I see a big future for these malls. Amazon is great for now but it requires an intact supply chain and transportation system. In the future I see these malls being emptied out of permanent stores and instead offer space for pop up trading stands. Like an Arab Bazaar or frontier rendezvous. People will gather to buy and sell the good they have grown, made or scavenged. Hot items will be squirrel pelts, copper pipes and scavenged nails.

  17. patrick says:

    why cant they be made into schools seems like a perfect fit to me they have restrooms and hundreds store’s should not be that hard to convert them to classroom’s i am a long time reader of wolf street never comment, but i am curious what others think about this ?

    • VintageVNvet says:

      Entirely feasible when the dollars are right IMO p,
      9Retired construction estimator have done conversions of all, or almost all types of residential and commercial construction to other types over the last 50 years or so.
      The right team of design professionals with the right team of general and sub contractors, especially when they all have ”skin in the game” at all levels from owners to ditch diggers make for almost always very profitable projects.
      50-70 years ago most projects were design-bid-build, with very clear divisions of responsibility that mostly ended up, in courts, on the contractors because of their mostly blue collar origin.
      Case law has progressed, along with the need for more efficient contracting methods, and now design-build, along with various other alternatives, CMAR, etc., seem to be much more prevalent and trending that way.
      What will work best is companies, such as the best electrical contractor I have ever work with at the multi MM level, that are all a family or union/coop/ etc., from top to bottom, including all the office folks. They could and did outbid the competition time and again, and were very good people to work with from the first bid to the last quality control customer service. They were also on time and very clear about other trades being ”out of their way,” as was appropriate.

  18. Old School says:

    I picked up some shares of an outlet REIT during the lockdown. If you are long term investor it’s always about estimating future cash flows to get a stock price. Sometimes the stock price drops more than the estimated cash flows so it’s a buy. If you misjudge the future, you are screwed, but there was some panic selling in the lockdown imho.

    • RightNYer says:

      Yes, there was some panic selling, but there was also some buying on the grounds that the government (whether Congress or the Fed) would never let anyone go bankrupt. If so, you wouldn’t have had people buying up cruise lines, for example.

      • Old School says:

        My friend’s son bought a cruise line stock at the bottom. Carnival I think.
        It seemed like a bad idea to me.

        Got another friend that bought ACB during the weed boom. At least I got her to limit her stake. Down 90%.

  19. Tom Pfotzer says:

    And still the questions remain: what to do with all that retail space?

    Probably not more retail.
    Not manufacturing. Don’t need parking lots for that, and retail layout isn’t that appropriate for manufacturing.
    Not storage. People will be shedding those assets (boats, campers, etc.) Might be auction-houses for shedded consumer assets, but that’s a short-lived use.
    Services? Health care, hospital…possibly.
    Gov’t functions – possibly, limited scope.
    Distribution? Don’t need parking, and most distribution happens in purpose-built structures (loading docks, cavernous open-plan structures). Amazon’s small-package sort facilities would work, but bulky stuff not so much.
    Bazaar-like market? Sure, but for rents to get restored to former levels will require a great deal of local production and new business formation to occur, and that’ll take a few decades.

    I’m just not seeing a compelling story for re-purpose. Looks like malls are going to take a while to get re-absorbed. Reminds me of the factories of the rust belt – and a lot of those factories are still moldering away.

    Big cities are in tax-base-trouble, and covid has accelerated the time-scale. As many of you have already observed, as the tax burden shifts to the residents, the exodus will accelerate. This is a replay of Detroit writ large.

    Where I live, the commercial tax base is retail and office space, and I think my community is emblematic of the remaining bastions of middle-class wealth across the country.

    The broader question I’m pondering is “What will be the new lifestyles we evolve into, and what will be the functions (jobs, technology, physical plant) which will support those new lifestyles?”

    Work-from-home is the opening act of the show.

    Looks to me as though lifestyles are very much in play, and that they’re going to look fairly different in 10 years.

    • Stephen C says:

      Yes, maybe it’s not about repurposing malls, but repurposing ourselves.

    • char says:

      Small towns are also in tax base trouble and hey have the added problem of young people fleeing those places. The none coreparts of metroploitian areas are likely solid.

  20. Island Teal says:

    Good article and comments as usual. Same feeling bout ZH. You have to work hard to get the “meat off the bone” so to speak.

  21. Lisa_Hooker says:

    Jingle mail sounds so very Christmasy. The end of December appears to be a good time to start.

  22. Lisa_Hooker says:

    Brings new meaning to “skip-to-my-lieu.”

    What happens to local government revenues when the property owners take the Special Servicer’s assessment to the local assessor’s office to adjust taxes due?

  23. SC says:

    Malls should be turned into entertainment centers. These are places which could offer indoor soccer, tennis, exercise classes of all kinds, arcade, theatres, golf, jump houses, board games, card playing, chiropractors, massage therapists, sports coaching, restaurants, and stores which support these activities.

    • RightNYer says:

      New Jersey tried that with the American Dream and it was a complete disaster. I don’t think there’s much demand for this type of place.

      • VintageVNvet says:

        That project was almost doomed from the first day from what I have heard from friends who worked on it at various times and levels rnyr.
        One of the best mall and outlet project managers I have known was there, trying to sort things out for a year or so, finally decided it was not worth the inevitable stroke or heart attack and moved on.
        Sorry I do not remember the details of the tales he told me over a couple of beers, but they were mostly the usuals, bad management at all levels along with owner inconsistency.
        Other trades folks had told me similar other times.
        Whenever my spouse and I talk having others build our last ‘dream house,’ I insist we will agree on the plans, then leave the country while the builder does it, and only come back when the key is ready.

        • RightNYer says:

          Truthfully, I don’t know the details either, but if a complex like that can’t be successful in the most dense place in the world, and which has a bad climate for 8 or 9 of the 12 months per year, I don’t know where it could be successful.

          I have also told my wife that if she wants to do a big construction project or a fixer upper, she has to do all of the work. I don’t have the patience.

    • Anthony A. says:

      Maybe turn them into nursing homes or prisons as that’s where most people will end up anyway.

      • VintageVNvet says:

        What’s the difference aa?
        Fil was in a couple until his demise in March at 93+,,, a grand old warrior guy decorated in WW2 & Korea, came back and lived the American Dream for the rest of his life, including raising four great kids and leaving enough for his wife of 60+ years to be OK, etc.
        The torture, after his last stroke, was on his kids having to deal with the lack of consistent skills and focus by personnel at the various late life care facilities in which he was incarcerated because he was too heavy for his kids to handle.
        ( BTW, these were not VA facilities, to which he went to get superior care when needed.)
        SO, the combination of facilities for these young, after war boom folks, combined in as many as possible cases with ”teaching” facilities will be at least one great use of the former malls.

  24. Jdog says:

    There are a lot of possibilities for repurposing, just not at todays cost per sq. ft. It will take a major revaluation of mall space to make it financially attractive for new uses.

    • nick kelly says:

      Yes. Use as big garage for boats, campers etc. prob nets about 10 % of usual pre-crash(es ) rent per ft. So mall has to be avail for less than 10 % which might sound ok to a lender who got the jingle mail years ago and has given up on retail.

  25. Tom S. says:

    I’m a little confused, if there is default and the Fed owns the CMBS or MBS doesn’t that mean the Fed isn’t loaning anymore, it’s spending? And doesn’t that spending have to be authorized by congress?

    There’s a jobs crisis, and a brick and mortar crisis at the same time, and that means another real estate crisis. But if the Fed owns the loans who pays for the defaults?


    • Wolf Richter says:

      Tom S.

      The Fed bought only $9.3 billion of CMBS, a tiny (for the Fed) portion of CMBS, and they’re all backed by apartments (“multi-family”) and guaranteed by the taxpayer via the Government Sponsored Enterprises (Fannie Mae, Freddie Mac) that issued these CMBS.

      The CMBS we’re discussing here are “private label” — meaning they’ve not been issued or guaranteed by government agencies. Investors are on the hook, not tax payers.

      What the Fed owns a lot of are residential MBS, meaning they’re backed by mortgages on single-family houses and condos. But even those MBS are all issued by the GSEs (taxpayer on the hook).

      • Tom S. says:

        Thank you for the insight Wolf. Will be interesting to see what happens moving forward.

  26. Instead of stealing China’s Treasury reserves for a Covid fund, why not pay them in kind with CMBS in a swap? Sort of a reverse QE. This would solve the trade deficit issue.

  27. As Shakespeare once wrote: “More truth is spoke in jest”, and I think Jay Powell and Crew should just print some more money while the Dollar Printing Machine is warmed up and house all of the homeless people in Houston, God Bless them, and those coming quickly down the pike all around the country starting in January.

    It is much better to put roofs over peoples’ heads, idle contractors would be more than happy to get the modification work, than have them exposed inhumanely on the streets like in uber-liberal San Francisco where it is not dog poop you have to hop over!

    More humane and more sanitary also. I think Wolf would agree. This is our 2020 and Beyond Reality, and we might as well make plans to just print the money and help those in need. Dollar is toast anyway, might as well crash it and get it over with.

    Have been to San Fran several times in my life, mainly for financially oriented business, BUT IT IS NO LONGER ON MY TRAVEL BUCKET LIST!!!!!!!!!!!!!! Along with Chicago, NYC, Seattle, Portland, you see the trend. And my late Mother was born in NYC in 1923, and I used to go to Radio City Music Hall as a little whipper-snapper, pre-Kindergarten.

  28. Sgt Grumble says:

    So the lenders take the property, cut the rents in half, cut the lease terms also in half and sit tight until things improve. In the meantime it’s a capital loss. If the loans weren’t splintered into a million pieces through a thousand hands, that is.

  29. Frank says:

    “The central bank is an institution of the most deadly hostility existing against the Principles and form of our Constitution. I am an Enemy to all banks discounting bills, or notes for anything but Coin. If the American People allow private banks to control the issuance of their currency, first by inflation and then by deflation, the banks and corporations that will grow up around them will deprive the People of all their Property until their Children will wake up homeless on the continent their Fathers conquered.” – Thomas Jefferson. (1743-1826).

    • wiley says:

      Well-put and unfortunately may be the plan.Canadian gov. Supposedly has been given NWO marchingdictates detailing Severe,extendedLockdown,forcedisolation/vaccines,relinquishing of assets,no questioning of authorities,healthpass,basic$.Drones are currentlyused in Australiatoharangue mask infractors.Canadapriest fined because he fed homeless last spring.Ireland hasalmost no covd deaths,theyre in Lockdown like criminals.People need to stand up,be brave and question more,push back while you can!!!

    • Implicit says:

      Genius Jefferson was awesome , and His early recognition of bank fiat reality made me not interested in seeing “Hamilton”

  30. DanS86 says:

    Fed will buy Malls. Go long!

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