Defaulted Crossgates Mall CMBS Loans Sold at 69% Below 2012 Appraised Value of the Mall

CRE debt keeps on giving. Retail CMBS have been a bloodbath for years. Thankfully, banks largely not on the hook.

By Wolf Richter for WOLF STREET.

“You can’t lose money in real estate” is funny in face of the mega-losses generated by commercial real estate (CRE), both debt and equity. Thankfully, so far, it’s mostly investors and not banks that have been getting mauled.

So here is this: Back in 2012, when three 10-year interest-only mortgages backed by the 1.3-million-sf super-regional Crossgates Mall in Albany, NY, were sold to investors, the collateral was valued at $470 million. This was a lot of value, as per this appraisal, and so the investors felt good about lending the mall owner, an LLC owned by Pyramid Management Group, $244 million against this property.

In 2020, when the mall was re-appraised, the value was lowered to $281 million, still above the three loans totaling $244 million.

In 2022, the 10-year mortgages matured, and Pyramid Management worked out a one-year extension until May 2023.

In May 2023, as the extension expired, Pyramid Management failed to refinance the mortgages and defaulted on the mortgages and failed to repay them. The lenders – the CMBS holders via the special servicer, can now foreclose on the property to take possession of the collateral.

But they didn’t do that. In June, the special servicer put the loans up for auction to sell them to the highest bidder and let someone else take possession of the mall.

Today, Trepp, which tracks and analyzes CMBS, reported in a note that the loans have now been sold for $173.9 million. After liquidation expenses of $29.6 million, net proceeds were $144 million, on collateral that had been appraised at $470 million when the loans were securitized.

So we note with raised eyebrows:

  • The net proceeds ($144 million) were 69% less than the property’s appraised value ($470 million) that was used in 2012 to sell the loans.
  • For the CMBS holders, the net proceeds of $144 million amount to a loss of $100 million, on $244 million in loans that they felt very good about in 2012, for a loss ratio of 41%.
  • If the buyer takes possession of the collateral, Pyramid Management will lose whatever money it put into it over the years.

The buyer of the defaulted loans effectively owns the collateral for $173.9 million. Whatever the ultimate fate of this mall is, the buyer will have a much lower cost base in it.

Retail CMBS delinquency rates.

The delinquency rate of retail properties has been horrendous ever since the Financial Crisis which was followed by the Brick-and-Mortal Retail Meltdown, when brick-and-mortar retail got crushed by ecommerce one parcel at a time.

In July, the delinquency rate of mortgages on retail properties that have been securitized rose to 6.9%. The dropping delinquency rate between 2017 and 2020 wasn’t because the delinquencies were cured, but because they were “resolved” in some way, such as a foreclosure sale, or a loan sale.

The loans backed by Crossgates Mall that have now sold will “resolve” the delinquency and will pull those loans out of the delinquency rate:

A brief history of the bloodbath.

An endless number of regional and national department store chains and other retail chains, from Sears Holdings and Toys ‘R’ Us on down to Radio Shack and Bed, Bath & Beyond, filed for bankruptcy and most of them were liquidated and vanished. All regional department store chains have vanished. There are just a few national chains left, including Nordstrom, Kohl’s, and Macy’s, and they have all closed hundreds of stores over the years and continue to close stores.  J.C. Penney was bought out of bankruptcy by mega-landlords Simon Property Group [SPG] and Brookfield, because they didn’t want shuttered anchor stores to doom their malls.

Zombie malls dot the landscape around the US. Collateral values of the surviving and still functional shopping malls – as we saw with Crossgates Mall – have plunged.

The biggest landlords, such as Simon Property Group and Brookfield, have walked away from numerous malls, letting their lenders – mostly CMBS holders – take the losses. For example, Simon Property Group walked away from the 1-million-sf Independence Center in a suburb of Kansas City, Missouri in 2019, which generated what was then the largest loss ever by a retail CMBS loan; it walked away from 1.2-million-sf Town Center at Cobb in Georgia in early 2021 and the 1.1-million-sf Montgomery Mall in North Wales, Pennsylvania in mid-2021, etc.

Westfield, which is owned by the European mall REIT Unibail-Rodamco-Westfield, announced in February 2021, that it would dump all its 27 Westfield malls in the US. The first two malls it walked away from were in Tampa Bay, Florida, letting the CMBS holders take the losses. It then sold and walked from other malls in the US. In June 2023, Westfield and co-owner Brookfield walked away from the Westfield’s mall in San Francisco, also letting CMBS holders take the losses.

Three publicly traded US mall REITs have filed for bankruptcy since November 2020: the SPG’s spinoff, Washington Prime GroupCBL & Associates Properties, and Pennsylvania Real Estate Investment Trust.

This bloodbath — we’ve been documenting it under Brick-and-Mortar Meltdown since 2016 — is a result of ecommerce which began to suck the lifeblood out of mall retailers, one parcel at a time, since the late 1990s. Americans have changed how they buy this stuff. It’s a structural change, and it won’t revert to where it was in 2002 at the peak of malls.

Since 2010, ecommerce sales have exploded by a factor of 7, from $40 billion a quarter to $278 billion in Q2:

Even as department store sales have collapsed, from $58 billion in Q4 2000 to $33 billion in Q2 2023:

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  112 comments for “Defaulted Crossgates Mall CMBS Loans Sold at 69% Below 2012 Appraised Value of the Mall

  1. Gen Z says:

    Anecdotal, but a few months ago, the shopping malls I visited in Toronto (Eaton, Fairview & Yorkdale) appear packed with shoppers consuming $20 ice creams and acting like they don’t smell.

    I wonder what today brings at those malls.

    • Sea Creature says:

      I noticed that too. American malls seem to be dying, but not those in other countries.


      • Wolf Richter says:

        Not many countries have a gazillion of these huge drive-to malls that USians have. Overseas, lot of retailers are in multi-story buildings in dense cities. But in terms of brick-and-mortar retailers themselves, lots of them went bankrupt, and we’ve covered some of them here, including a bunch in Canada and Europe that we covered over the years.

        • Bob says:

          All I hear on WS is that Japan is going to collapse, but I never hear about any trouble in the Japanese CRE sphere or in banking.

          Night And dark clouds for the USA and maybe sunny or partly sunny for Japanese CRE…

        • Wolf Richter says:

          Japan’s CRE prices collapsed a long time ago, taking down a bunch of banks. They’re now just barely recovering. They had their CRE crisis.

        • TimTim says:

          BHS, Debenhams, several others in the UK too.

          BHS store in Glasgow was still boarded up as of 2022 when I last saw it. BHS collapsed in 2016..

      • Gen Z says:

        I guess there is a lag effect of consumer spending. Canada has a real estate bubble, and a lot of people took 3% home equity lines of credit (during 9% inflation) to spend money like there is no tomorrow.

        On the other spectrum, the working class fight each other for a 25 cents dispute in the grocery store. Like literal fighting the Manager at a discount store.

        A tale of two cities.

        • Wolf Richter says:

          Here’s our series on Sears Canada, for example :

        • NBay says:

          Eddie Lambert was on Cramer’s CEO “Hall of Fame” and also a close friend, so he could vouch for him personally. Wolf wrote quite a bit about “The adventures of Eddie Lambert”.

          Made PE in all forms scare the hell out of me…and it still does.

          It’s where most all of my richer relatives have their money, according to sister (who kisses all their asses WELL, but still asks some questions for me. I’m still considered solid family, still same blood, and all that is VERY important to devout Southern Baptists….they all still believe I will return to the fold any day because I used to believe…it’s just that the devil has had me for a while now)

        • Gen Z says:

          I guess the end of Sears was a sign of an eroding middle class?

          So what we’re left with is Louis Vuitton stores for the petit-bourgeois and the rich, and the Walmarts for the working class and poor?

      • Motorcycle Guy says:

        Here in the Philippines we have a few multistory mall operators. SM City, Robinson’s and a few others.
        We also have our Amazon equivalent, Shoppe and Lazada. When you buy through the online stores delivery is to your house and it’s typically COD (Cash On Delivery).

        • Sea Creature says:

          Yes, and the SM malls as well as Robinsons are usually heaving full any day. Even more surprising given how much lower ppp is there versus the USA given the prices are not that much lower

        • Bs ini says:

          In Cairo when i lived there we had home delivery for groceries and take out cash on delivery . Been going on for decades. Same in BA Argentina with delivery free but cash paid either online or at the store . With cheap labor and transport costs these programs are easy to implement. I could easily see folks scan items they consume each day at their homes and the quantities measured real time with robot home delivery restock homes .

      • Jack says:

        The US is the trend setting. Online buying is more prevalent in US than Canada. Canada is at least 5 years behind.

        Take heed – same thing will happen elsewhere.

        • kam says:

          Sears Catalog just morphed into Amazon Internet.
          Shop from home, get stuff delivered to your door.
          Wolf, “(Investors) that have been getting mauled.”
          Sir, you have a choice, you can be Mauled or you can be Malled.

      • Nissanfan says:

        It’s not strange. US Malls had initially a different purpose than to be built in suburbia with huge parking lots. Those were meant as place to socialize, shop etc.

        Architect of first Mall, Viktor David Grünbaum envisioned a communal with a lively mix of commerce, art and entertainment. Something he knew from Austria.

        That is exactly why in Europe (Based on my experience only, but maybe in other parts of world too), malls serve that very purpose and thrive.

    • NBay says:

      Here’s your non-anecdotal answer as to “who” they are, Gen Z. I don’t think much has changed since this WS article and THE CHART came out.

      Very good article….so, obviously defaulting on debt and therefore the Jingle mail “lowlifes” that “caused” the GFC are no longer looked upon as having serious moral failings, yes?
      Right and wrong DOES change……..

      • NBay says:

        In fact, how about going back 12 years and see if we can’t get a BETTER perspective on that batch of “jingle mail” and where we are now in our “thinking”.

    • Bigc says:

      Eaton Centre’s largest tenant , Nordstrom just closed. Why? Because Canadian retail is brutal.
      Rents are way too high, common area costs way too high and realty taxes are insane!
      Most retailers are barely surviving.
      You don’t see bankruptcy among the big regional malls because all are owned by the big pension funds, OMERS, TEACHERS,CPP etc. They are very reluctant to provide actual numbers on the true performance of those malls.
      Apart from those malls there are plenty of dying malls in the GTA, Woodbine Ctr, Erin Mills, Sheridan Mall just to name a few.
      Toronto has a billion dollar budget deficit, let’s see what happens when the newly elected socialist mayor starts raising taxes even higher!!!

      • NBay says:

        Less to trickle down and therefore more High End mall failures?

        Just a guess, I have lots of Canadian friends but lost touch with the only two in Toronto (rest in BC), where I consulted on CO2 laser operation/maint for about 2 1/2 weeks in 1980. $25/hr CASH plus ALL expenses (stayed at second in command’s apt who had a new Corvette and we partied EVERY night! The owner said he’d like to keep me longer but couldn’t afford our bar tab (just a joke). Found out later Canadian Gov’t paid for ALL my costs (or I would have asked for more, was the beginning of bad times for me) because I was bringing a new technology into Canada, Laser Engraving of hardwood wall plaques, trophies, and expensive desk widgets. Many wealthier people here may have or were awarded them. Especially sales types. Even Wolf maybe had one or more the wall at his Ford dealership, we did lots of those for all dealers.

        • NBay says:

          Liked that big bar that had 6 or so different music venues and same bar ran past all od them. Whatever music you wanted!

          Ontario Science Center was cool, too, really fun for kids.

          Lots of green space for being their LA, too, (1 Canadian in 10 there) and of course a couple times ate at CN tower. Impressive and nice for a big town was my impression in 1980.

        • 91B20 1stCav (AUS) says:

          NBay – remember LaserCraft well (we mentioned this long ago). A lot of the moto shop customers came from there and HP’s long-gone Valley plant, OCLI, and other vanished mfg. from the Llano de Santa Rosa…

          may we all find a better day.

        • NBay says:

          Worked at OCLI, too. All these gigs were non-union and paid varying amounts over minimum if you were a good, valuable tech, and enabled me and a lot of friends (your customers) to make enough money to really enjoy ’70 to ’80 (when Reagan showed up, along with the monopolies that ate these places up). I went to college always working full time and had a TOTAL BLAST back then. Best years of my life, and not ONE bit of time wasted on the “future”. I really pity kids today.

    • Tony says:

      You don’t have to be a genius or an analyst to tell what’s going on go and look at the price the per square foot price that these tenants are paying go into a foot locker going to any of these places there is no way they’re surviving it’s impossible

  2. Rob says:

    “Pyramid Management Group”, an apt name if there ever was one.

    • Apple says:

      I guess “Ponzi Management Group” was already taken LOL

    • djreef says:

      You seriously can’t make this stuff up.

    • Digger Dave says:

      Something tells me that the executives of this company didn’t put any of their own money in…and they probably milked the income and walked away just fine. Isn’t that how it works here?

      • NBay says:

        Wonder what shell or PE company got all the “liquidation expenses” ?
        Running the money “pipelines” allows one to put “taps” anywhere they want and extract what they want……within current economic “reason” and “law”…..I suppose. Also how that $30M was divvied up, kicked back, and “enjoyed” in other ways? Probably a story in itself….deep rabbit hole.

    • ColdSteel44 says:

      The jokes just write themselves in Clown World.

    • Miller says:

      lol had been thinking that too. Wondering if whoever named that management firm was trolling the rest of the partners. Or maybe one of them asked his ornery teenaged son for name suggestions, not catching on to the joke until it was too late.

    • Mike G says:

      I had money in Pyramid Building Society in Australia (like a credit union). Then it collapsed. I guess I shouldn’t have been surprised.

  3. Bs ini says:

    Plenty of walking cities have functional malls where the population density is high. My guess is Toronto fits that picture. Location is important. That said over time these may struggle or be repurposed as well. Real estate changes are slow to mature but all have gone through transformations. The small towns throughout the country have for the majority downtowns that are just a small portion of the 1960s and 1970s. This trend is not new and what’s a shame is the number of unaccredited investors that purchase these products

    • Apple says:

      Sears pioneered the retail move from the city cores out to suburbia. And now Sears is gone. I just can’t see the other department stores hanging on much longer.

      • Shiloh1 says:

        Even in the 70s and 80s they were stupid to be part of a suburban mall rather than free standing.

        At one time the idiot Chicago Brennan brothers ran Sears and Montgomery Wards.

      • NBay says:

        All through grammar school (the 50’s) I never saw a Sears store or any mall. But everyone picked most of their birthday and xmas wish lists out of a thick Sears catalogue. They even had mo-peds and 250cc motorcycles in there. Plus all the clothing anyone needed, lawnmowers…you name it.

        “Amazon” sans computer.

        • NBay says:

          Earlier in the century they even had Thompson submachine guns in their catalogue, I’m pretty sure.

        • rick m says:

          There was a Sears store in downtown Barcelona in 1969, wonder how long it lasted. There may have been more over there but I never saw another.

        • Anthony A. says:

          Sears also sold a new car (stripped down Henry J) and also houses in kit form.

        • 91B20 1stCav (AUS) says:

          …what happens when a firm, even if presently-dominant and possessing all of the necessary pieces, loses sight of the concept that brought them to the dance (honest, frequent and actionable SWOT-analyses always required)…

          may we all find a better day.

      • Nissanfan says:

        Sears started as a catalog order business. They had their right path, except they started from the back end of it.

    • Miller says:

      yeah Toronto is a good example, much of Chicago too. Not to mention mega-cities like Mexico City, Tokyo or especially Sao Paolo. It’s easier to run a mall when you have a guarantee of foot traffic walking by after work or on breaks to grab a bite or a gift.

    • Lune says:

      Even those are hurting. Water Tower Mall in Chicago, part of the “magnificent mile” shopping district is half empty. And 5th Ave and other prime shopping districts in New York are half empty with rents in free fall.

      These are places that not only have local foot traffic, but are national and international tourist destinations in their own right. And they’re dying. If they can’t survive, the average suburban big box mall is surely toast.

  4. Einhal says:

    Hopefully the Fed sets up a new SPV with the Treasury to buy CMBS at par. No good, God fearing American investor should EVER have to take losses. If we don’t make them whole, the terrorists will have won.

    • curiouscat says:

      Investors could always start a “Fund Me” page.

    • Max Dugan Returns Again says:

      “The terrorists” This is subject is about the ever changing business environment. It has nothing to do with terrorists or trashy republitard talking-point dogma.

      • Wolf Richter says:

        You missed the sarcasm?

        • Einhal says:

          Apparently…I thought it was pretty obvious myself, but what do I know?

        • 91B20 1stCav (AUS) says:

          Ein – methinks placing the ‘/s’ switch is becoming more of a necessity (…one reason could be some here are too-young to get the reference, and need a clue to hopefully do so. Brought into my face back at the moto shop in the aughts when I used the term: ‘…meanwhile, back at the ranch…’ speaking with a new employee. They didn’t understand me and I was puzzled at that until I realized it had been a long time since our mass entertainment had been awash in cowboy operas…).

          may we all find a better day.

    • random Dude says:

      Incidentally, the last comment is accurate: the old spirit of America died after 9/11. All left is a husk with delusions of grandeur on the back of the dollar. For how long?

  5. Publius says:

    90,000 packages/day are stolen or lost in transit in NYC, so the criminals certainly are aware of the shift to e-commerce. But no flash mob porch pirating yet, like brick and mortar shops experience!

    • Brant Lee says:

      90k packages per day stolen or lost just in NYC? If that’s true, that’s a problem. How about nationwide?

      Have any UPS trucks been hijacked? Usually, the door is left open with the motor running.

      Lots of thievery going on, you better have it not only nailed down but use some screws too. What’s to stop your home from being flash mobbed?

      • NBay says:

        Because it’s unlikely you have the entire new Gucci collection in your house? Or ever will?

  6. Greg Hamilton says:

    Reminds me of an article I read many years ago. I don’t have the link for it unfortunately. Uncle Warren was given Arnold investment advice for his new found wealth. “Strip malls,” Uncle Warren said. “Strip malls,” he added for emphasis.
    Reminds me of the line from the Graduate. “Just one word. Plastics.”

  7. Gary Yary says:

    Sears and Montgomery Ward were blue print Amazon and online shopping.

    Both are gone.

    Trend to the left – trend to the right.

    Treasury yield curve is destined towards 5.5% on all durations 30 days to 30 years, a laser flat lined AI engineered outcome.

    AI will will also live your life for you…post comments to Wolf Street while you lay like a corpse waiting for Amazon and Tesla to enrich your digital soul.

    Or, it will fade away like the floppy disk.

    Thank you Wolf and the regulars for focusing thoughts in sphere of reality.


    • longstreet says:

      “ will fade away like the floppy disk…”
      More appropriately ….like the Sears Catalogue …..and the telephone book

  8. SoCalBeachDude says:

    Malls have been failing in droves across America for 50 years. So, why are any of them even left at this stage?

  9. Max Dugan Returns Again says:

    $178 million sounds like a steal for sure, but the existing realities for malls and commercial properties continue. If they end up demolishing it or whatever, even just making repairs and remodeling this aging structure….it’s more $$$ that will need to be spent.

  10. John Beech says:

    So 1.3M sq feet for $173M, or $133/square foot beats hell of out $361/square foot if was appraised at in 2012. Still not sure that’s a good deal unless you have a use for it. Anyone know if the 1.3M square feet is the total property or heated and cooled square feet under cover?

    • Brant Lee says:

      If you’re a retailer in 2012 looking at $361 sq ft plus owner markup on top can you imagine the markup on merch you would have to charge? In the end, it’s a ripoff to the customer. No wonder online is winning.

  11. Motorcycle Guy says:

    Anyone remember the TV commercial that aired in (I believe) Christmas 1999?
    It opened with 3 or 4 people staring into locked doors but you couldn’t tell what the building was that the doors led to. Then the light dimmed as it became dusk and a few more people had shown up. Then the camera panned back and you suddenly realized that it was a closed shopping mall. Then the name Amazon appeared on the screen. It may have included the words, “The future of shopping.”

    • Harry Houndstoothh says:

      Motorcycle Guy-

      Thank you! Amazing!

      The malls might end up being Amazon fulfillment centers.

  12. implicit says:

    I am curious about how it works.
    Are the the original CMBS sharte holder at Special Servicers requiered to sell their shares to the new investors at auction, Do the cmbs shareholders vote to sell at auction. or does the Special Servicers people make that decision.

    • Petunia says:

      Most likely the special servers had the right to sell the property outright or the debt. The proceeds are distributed, passed through, to the cmbs holders and they no longer have any interest in the property. The new debt holders have a claim on the future revenue, whether that revenue comes from an outright sale of the property or from operations.

      • Implicit says:

        Interesting, Probably need a lawyer just to understand the fine print on CMBS to explain what you’re getting into. Th e risk must be going up like junk bonds considering they are bundled with other shatner.

  13. Dave says:

    Recently, I have heard rumblings that Amazon will stop free returns. If true it could impact e-commerce and help in person retail.

    • Wolf Richter says:

      People have for 20 years come up with reasons why brick-and-mortar will somehow be able to fight off ecommerce. Not happening.

      Brick-and-mortar returns are even worse because the processing of the return is a lot more expensive than an ecommerce return to a special return center. And returns have dogged brick-and-mortar retailers just as much.

      Returns cancel out the original sale, plus add costs. So returns reduce ecommerce sales, and add costs. They’re really bad for revenues. Slowing down returns is going to be helpful.

      So… people who intend to return it when they order it, but with a changed policy don’t buy-to-return, and don’t buy at all, then that’s not a lost sale for the retailer because the return would have cancelled the sale.

      It won’t change the power balance at all between ecommerce and brick-and-mortar, but it will cause people to think twice when shopping and when returning stuff.

      • MM says:

        “Brick-and-mortar returns are even worse because the processing of the return is a lot more expensive”

        This may be the casd for large companies, but for smaller retailers the opposite is true – e-commerce returns are more costly due to shipping, and small shops don’t have dedicated return centers. They just have to take the product back, refund, and eat the shipping cost.

        I do hope Amazon cracks down on return policy abusers. Its a huge headache for our FBA (fullfilled by Amazon) department. I’m also tired of customers whining “but AmAzOn gives us free return shipping”

      • danf51 says:

        I usually try to buy locally in our small town. However, in most cases retailers only carry items that are in highest demand. usually have limited selection of sizes and carry very low inventories and so are often out of stock when I want to buy. It’s understandable, but it means that about 70% of the time I end up ordering from Amazon. This whole model though, rests on cheap energy. Something is going to break.

        • NBay says:

          If this recent spate of climate anomalies does in fact reflect a non-linear “tipping point”, then “Something is going to break” means one HELL of lot MORE than not getting some of the shit you personally want to consume.

          A dollar not spent is a 100% “investment” return on our higher animal life support systems.

        • Bs ini says:

          I think we are experiencing expensive energy and labor inflation with the drive towards online shopping. If online was not more efficient the world would not move in that direction. NG coal and oil price are all much lower priced today than in 1980 after adjusting for inflation .

        • 91B20 1stCav (AUS) says:

          NBay – well said (have always wondered at the emissions generated by money burning a hole through a pocket…).

          may we all find a better day.

        • NBay says:


          True dustoff, all other pocketed inanimate objects that contain so much power will do just that….Ask The Curies and people with their same interests, or even a vaper, that is careless with his 18650 battery. I guess gold and the like, and most explosives, would be exceptions, but it totally wrecks my money fantasy and your joke.
          I remember leaking lighters of old used to cause a bad rash, too.
          We’ll figure out another was to curse the stupid people with excess money and excess whatever they spent it on, brother.

        • NBay says:

          Also that “Dollar not spent is 100 % return on Human species investment” applies whether you have a dollar to spend or NOT.
          Our little economic game means nothing…or very soon will……if things continue as is……hell, I may even live to see it.

    • Petunia says:

      I doubt free returns will be eliminated. Amazon has been expanding into fashion and a key selling point is ordering an item in multiple sizes and returning the ones that don’t fit. This return feature and discounting are the key features of their expansion into fashion.

      • Implicit says:

        It will keep the delivery drivers busy until the drones and robot cars take over like on the Jetsons.

      • MM says:

        Amazon won’t do anything until enough 3rd party sellers leave the platform in protest. This has already started to a small degree.

        Amazon does a good job at screwing over its 3rd party sellers.

    • MM says:

      I disagree, If anything, this will simply push Amazon customers to buy from other websites rather than switch to in-person shopping. Perhaps another marketplace website (eBay?), or directly on the websites of smaller competitors or directly from the mfgr.

      These days, in-person shoppers are a fundamentally different customer than those who buy online, in my experience.

      • Miller says:

        It would likely benefit Etsy and Shopify without a doubt, not to mention Shein, Temu and Alibaba. Been surprised at the number of friends who resentfully cancelled Amazon Prime when they raised their prices amidst all the other inflation, without providing anything in the way of better service or purchase options. If Amazon things they can just use monopoly power to push up costs and extract more from captive customers, they’re gonna learn a painful lesson. With costs already too high and inflation in the US ongoing, customers have far less patience than before for these kinds of games with pricing and needless cost increases.

  14. Drdj says:

    Recently, I have heard rumblings that Amazon will stop free returns. If true it could impact e-commerce and help in person retail.

  15. Frank says:

    Forget RE investing, I want in on the business that collects ” $29.6 million in liquidation expenses…
    Anyone who invested in malls in the last decade must have been insane. It did not take much insight, everyone saw their local malls slowly dying.

    • Miller says:

      Some art still doing well, esp if they have something basic like a grocery store or a good food-court as part of the mall or a nearby shopping center. But yes not an area I’d want to be invested in.

  16. Swamp Creature says:

    “Westfield, which is owned by the European mall REIT Unibail-Rodamco-Westfield, announced in February 2021, that it would dump all its 27 Westfield malls in the US.”

    What does dumping a mall mean? We got a Westfields mall here in Bethesda, MD. Is that going to be dumped? What happens to all the stores?

    I need some clarity.

    • longstreet says:

      Our Westfield Mall has been converted into a little “village”…
      Many many apartments and condos… three story structures…with shops and restaurants on the first floor. A captive audience of sorts.
      A good approach. They construct their own community, borough.
      Govts need not be involved. There are plenty of entrepreneurs and still loads of money looking for investment.

  17. Nick Kelly says:

    It will be owned by someone else. If the stores are profitable you may notice no change. Handovers in CRE CAN happen seamlessly. You just have to hope that new owner who bought for a huge discount on original value is then not also taken out, until the mall is abandoned. There is a sort of cult of young folks, not vandals or thieves who get into abandoned malls and make videos.

    • rick m says:

      George Romero filmed Dawn of the Dead in 1978 in a shopping mall, seemed appropriate.

      • Jack says:

        The Dawn of the Dead mall was empty as well.
        Some zombies trying to get in.
        Seems appropriate.

  18. longstreet says:

    The threats of mass shootings, gangs, thieves, and having your car stolen …. just are not appealing.
    COVID response impact was disastrous ….
    When those keys hit the mailbox, I bet it makes a loud racket.

  19. Citizen AllenM says:

    Welp, jingle mail of the jumbo variety. In the hood, the widow finally sold her palace, but the final price went from a ridiculous 760 ask to 670 with all the concessions. The exact same floorplan was 809 last year, with a pool though. She was mad and relieved. Stayed too long at the party. At the peak these would have sold for 900.

    Back to the future. The biggest problem for retail is the buying experience was always mediocre for bricks and mortar. Huge amount of time and money wasted on spraying me with perfume on the way to buy shirts.

    Now, click click and the boxes show up.
    For a bit less money and huge time saved

    • Dave Kunkel says:

      Not to mention digging through stacks of clothes to find your size only to come up empty.

  20. Beachwalker says:

    I wonder how many “young people” there are who never go to brick and mortar stores and who wonder why anyone else would.

    • Lauren says:

      I’m only youngish, but I went to the mall last weekend for the first time in well over a year. It wasn’t horrible exactly, but when it came time to check out and I’m having to wait in line to get asked annoying questions, I realized how much better buying clothes online is. I think kids still like malls, though.

  21. Gabriel says:

    Somewhat off topic but I read a clickbait article that said apartment buildings are going to be the next domino to fall.
    Any data to validate that Wolf?
    Thank you.

  22. Steve says:

    This is how equilibrium gets rents down. And by alot when a building can get sold at 66% off. When people can’t(dont) reduce rents, this is how equilibrium deals with inflation – the hard way. Either reduce your prices or go bankrupt is my mantra now. I’ve reduced my prices 25% already and expect at least another 25% will be needed, possibly more. Will this same scenario play out in residential RE and rents? I say yes. Equilibrium will find its own path to massive layoffs and defaults and a renters exodus/crisis/defaults since stubborn greed is having unsustainable inflation. Inflation resolution the hard way, or equilibriums answer to Fed made easy money bubbles(boom/bust cycle). It doesn’t say how, it just says get ready. Warnings(like this) all over the news, every day it seems. In one day, So Cal goes from calm weather to a Hurricane 4(hillary) not happened since 1939. Poor Baja. Can greed turn to panic quickly? I remember in 2007 in one month the housing euphoria completely flipped. Wisdom is called for here. Is it really true the band kept playing as the Titanic was sinking?

  23. Nicholas says:

    Great piece! However, I can’t find supporting data on department store sales decreasing from $58 billion to $33 billion. I see that you pulled from the Census but I don’t see any pieces that show the chart that you depicted. What data did you reference?

    • Wolf Richter says:

      Nah, I don’t teach people such basics. That’s not my job. You need to learn that on your own. You need to learn how to navigate the Census Bureau’s data section. For the economic data that the Census Bureau produces, the site is easy to use and fast, once you get the hang of it. Much easier than other government agencies, especially if you want to download all the subcategories, seasonally adjusted and not seasonally adjusted, by date range. So give it a try and report back how you did.

  24. fred flintstone says:

    So who is holding all these bonds……pension funds? Insurance companies?
    Sovereign wealth funds? Somebody is taking it in the shorts and is uninsured by the feds.
    Also…….the 1.9 trillion small banks hold in commercial real estate loans…….supported by collateral in what…..buildings that have shaky valuations.
    Not to mention the big banks having some holdings….it’s not like they have zero exposure.
    Better get these kids back to work or this could be a 1929 stock market like trigger. This government does not have the ability to borrow unlimited funds any longer. The yields would skyrocket….fed or no fed.
    OK……I’ll have breakfast and shut up.

    • Nick Kelly says:

      ‘This government does not have the ability to borrow unlimited funds any longer’

      Unfortunately it does and is doing. Since the debt ceiling drama of a few weeks ago, the US has added more debt than in its first two hundred years, including paying for WWII.
      The cleanest dirty shirt is, if anything, getting relatively cleaner: see Japan, China and the ultimate rag in that BRICS powerhouse, the rubble, aka the ruble. Some humor in the Indo-Russian sphere: to contain the hegemonic West they said they would trade in each others currencies, but now Rus don’t want rupees and Indo don’t want rubbles. At least Rus has pretty reliable electric grid. Indo iffy. In SA most businesses need a generator.

      If this keeps up, eventually even the US$ will collapse at some point, but eventually we’re all dead, and at least in my case I think the latter will happen first.

      Disclosure: may I put in a plug for C$, in which I have some savings, paying 4.55 in a one year GIC. Trudeau just appointed a new Minister of Finance, a lady, they can be tough, who has just told all depts to cut spending. A main target: the disgraceful many billions spent on outside consultants. Canada is substantially less indebted per person than US. It has natural resources, access to NA markets, etc. I think the C$ at .73 US has some upside.

  25. Danno says:

    I’m waiting til Amazon is side stepped fully one day with all manufacturers just selling direct

    Next will be the sweat shops selling direct, followed by the sweatshop workers selling direct.

    Final stage will be the producers of raw materials.

    I’m seriously joking.

    Finally just read 2nd hand shopping is gaining popularity. Gee, I wonder why for 50% of the population.

    • Lauren says:

      I personally find it very easy to avoid Amazon. I sometimes shop at Whole Paycheck though because it’s right down the street.

  26. Desert Dweller says:

    A legitimate question is will retail sales at brick and mortar stores make a comeback in the coming years? I don’t know about you, but I like seeing certain items in person before spending my money.

  27. dang says:

    Well, at least they’re not worthless. The market for physical product presentation is temporarily overpriced.

    What happens when the on-line market can no longer rely on the retailers to demonstrate their product.

    The financial story of the CRE market is a prime example of the intuitive sense one has when presented with the basic philosophy of QE.

    • dang says:

      An important point that you made was that it is so called investors ( speculators) that are on the hook for the losses as suddenly, risk rears it’s ugly head.

      They need a sweetheart deal like the banking industry has carved for itself through their pet, the Federal Reserve Bank of the United States.

  28. SpencerG says:

    At the time it was pretty shocking… and it didn’t help the town coffers at all… but when my little Southern city’s mall was not only shut down in 2007 but KNOCKED DOWN… it seemed like a complete disaster. Instead we ended up avoiding the entire “Zombie Mall” experience that other communities have gone through who haven’t instituted such a drastic solution.

    The real question even fifteen years later is what comes next? We have a LARGE area right in the center of town that is sort of “semi-developed.” Paved and has plumbing… but no buildings. Sooner or later a solution will present itself.

  29. SpencerG says:

    Right on schedule… a CNN article saying “The US mall is not dying”

    Don’t these people know that “through the looking glass” is not supposed to be an aspirational phrase?

  30. CA Stevens says:

    From Albany NY news paper today…Pyramid just shrugged off the default as they still run the mall.

  31. Kelly Clarkson says:

    What happens to the municipalities and public school systems who rely on the property taxes generated from these high properties for funding?

  32. AK47 says:

    It’d be interesting to see these loss ratios in the context of already earned interest. Yes it’s a 41% loss, but presumably investors collected 10+ years of cash interest payments (maybe even some loan amortization) that would offset the loss ratio/show better to LPs?

    Reason being investors are much happier to take a 1x return in a bleak situation than a loss and I wouldn’t be surprised if that’s where this one shook out given their unwillingness to even take control of the collateral.

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