The largest mall landlord has shed 38% of its shopping centers since 2012. It saw what was coming. So here’s one more.
By Wolf Richter for WOLF STREET.
Simon Property Group [SPG], the largest mall landlord in the US, whose mall count has been shrinking for a over a decade, is planning to walk away from another mall, and from its debt, to add to the series of malls it sent back to lenders since before the pandemic, this time, the second largest mall in Pennsylvania, the 1.7 million square-foot Philadelphia Mills outlet mall.
Simon Property’s brand name – “A Simon Center” – has already been removed from the mall entrance, according to locals talking about it on Reddit.
Simon owes $259 million on the property, according to the Philadelphia Business Journal. The loan matured in June, and Simon failed to pay it off. The lenders are holders of Commercial Mortgage-Backed Securities (CMBS), now represented by the special servicer. The debt has been in and out of special servicing even before the pandemic.
When Simon bought the property in 2007 as part of this acquisition of Mills Corp, the property was appraised at $370 million. The City of Philadelphia has recently assessed the property value at $101 million, which would represent a 73% haircut. But when the original mortgage of $278 million was securitized in 2007, buyers of the CMBS felt pretty good about the $278 million loan being backed by $370 million in collateral.
Simon is now in talks with the special servicer to hand over the mall to let the CMBS holders worry about the losses and what to do with the mall.
Like many malls across the US, Philadelphia Mills has been beset for years with store closings and cash-flow issues, as part of the phenomenon that we’ve called since 2016 the Brick and Mortar Meltdown, largely brought about by a relentless shift in the way Americans shop: online, which has sent scores of large brick-and-mortar retail chains into bankruptcy and liquidation. To avoid losing more stores at their malls, Simon and Brookfield, the second largest mall landlord in the US, have teamed up to buy some retailers out of bankruptcy, including the operating assets of JC Penney, in November 2020.
Leases of two of the anchor tenants at Philadelphia Mills expire this year: Burlington Coat Factory’s in August (129,000 square feet), and AMC Theaters’ by the end of 2024 (68,000 square feet). AMC has been in a years-long battle to survive by hook or crook the movie theater meltdown. Then, in 2026, Marshalls’ lease (70,000 square feet) will expire.
If those leases aren’t renewed or extended, “That is going to have a residual effect,” Jonathan Ramel, VP at Morningstar Credit, told Bisnow. “I covered this in 2007, and this mall, when it went through its first iteration and it lost some big tenants, it was able to recover. But in this time and day, it might be much more challenging.”
The original 2007 mortgage matured in 2019 but was extended for a year; it then was extended again in 2020 during the pandemic. Extend and pretend can go on for years, but not forever.
But Simon paid interest through June on a $200 million portion of the loan, the A1 note and the A2 note. There are also a B1 note ($54 million) and a B2 note ($36 million), according to Bisnow.
The CMBS delinquency rate for mortgages backed by mall properties rose to 6.4% in June, as the balance of delinquent loans rose by $525 million, including four mall loans with balances of over $100 million each, according to Trepp. This likely doesn’t yet include the $200 million in Simon loans because the interest was current through June.
Simon walked away from malls across the US since before the pandemic, including Independence Center near Kansas City, Missouri, which in 2019 generated what was then the largest loss ever for mall CMBS holders.
Simon has also sold malls, including to the public. Since 2012, it has shed 122 shopping centers of all types, or 38% of all its shopping centers, going from 317 shopping centers in its annual report for 2012 to just 195 in its Q1 2024 Supplement.
This mall-count reduction includes the spinoff of 98 shopping centers through the public listing of Washington Prime Group in 2014. Washington Prime Group’s shares zigzagged lower from the $190 range in 2014 to nearly nothing after the mall REIT filed for bankruptcy in July 2021 (the ticker of those shares was WPG). Simon saw in 2014 what was coming and got rid of those malls; investors didn’t and got wiped out.
And for your amusement, here are ecommerce sales, which jumped by 8.6% year-over-year in Q1, to a record $289 billion seasonally adjusted. For the four-quarter period, ecommerce sales rose to $1.12 trillion. Over the four years since the start of the pandemic, ecommerce sales have exploded by 90%.
Enjoy reading WOLF STREET and want to support it? You can donate. I appreciate it immensely. Click on the beer and iced-tea mug to find out how:
Would you like to be notified via email when WOLF STREET publishes a new article? Sign up here.
I remember reading something in the 90’s that the US had almost twice as much retail real estate per capita as the rest of the world. I knew there was trouble coming when my parents (in their early 80’s at the time were buying most things online). I predict we will still have a lot of pain ahead in the retail sector. In the last ten years I have just been to a mall once (I had an appointment to get a new iPhone battery installed for free under warranty at an Apple store).
There needs to be a lot of investor pain here. Everyone needs to be taking big haircuts. Next, it needs to happen to all of these investors who’ve bought homes to rent & driven up prices. No one should have any sympathy for these people. I sympathize with the citizens of Barcelona protesting against all of the AirBnB, etc homes being rented out by tourists. Affordable housing is a basic need. Without it, society starts to break down, especially when you consider the growing wealth gap that investment properties cause.
We are nearing a major tipping point in terms of insurance & property taxes. If the hurricane season is as bad as what it’s expected to be, we may be looking at large swaths of the SE coastline being unaffordable in terms of insurance over the next 2-3 years.
Keep in coming CMBS. I hope your problems spill over into residential housing by next year. It’s long time over due.
I see supply of residential RE has gotten MUCH better in the past few weeks. Prices have come down a little, but what I’m really seeing is more supply. I’m cheap and I’m talking the $200-250k bracket, but I look at both houses and condos and I do look over wide swaths of the country where these listings exist in the first place (ie not HCOL cities or California). It’s only a first step, and I’m aware the plural of *anecdote* is not *data*, but it’s been swift, conspicuous and national.
free money and no liability – woo hoo
can us peasants get some
didn’t think so
surely the executives are suffering with their $$$100 million golden parachutes
Isn’t capitalism great?
Capitalism works, because of the consequences of mal investment or not paying attention. “Free” money and regs kill the concept, and create large pools of “fools” who then bellyache when they get that big haircut.
My first boss told me:
Good times breed bad businessmen.
Bad times breed good businessmen.
To me, it looks like we have just started to exit an unprecedented run of “good times”, and now dealing with the resulting “bad businessmen”. Wolf’s list of imploded stocks seems to illustrate the point.
Investment properties aren’t any more responsible for the wealth gap than any other asset class. They contribute to the lack of affordable housing in some areas, so you need to advocate for government intervention in that regard, but real estate investors should not be vilified any more than stock market investors and if they make a bad investment, then eventually it will come home to roost. You can’t just “get out” of a real estate investment as easily as most other assets, so if a bad investment was made, then the price will be paid. Just be patient…
Not sure if I like it. For years I have been enjoying hiking, camping with less crowds. Now the mall people went outdoors. LOL
Now you’ve gotta get a little further off the beaten path but it’s still there…
No they didn’t. They’re at the dollar stores and Wal-Mart super centers.
All the good things, drive ins, camping by the lake, hunting, even a walk in the park has been permanently interrupted by my evil bro….. It’s all gone.
But it’s all good, I can still see a bit of blue sky, and enjoy a flock of birds as they enjoy their flight.
Yep. Thanks for keeping the spirit up!
I only enjoy A Flock of Seagulls
How can this loan be considered current when SPG is only paying interest on $200 million of the total $278 million? Did the A1 & A2 notes agree to interest only and the B1 & B2 notes agree to roll interest into principal(or forgive all interest)? If so the extend and pretend makes the CMBS delinquency rate look to be a questionable statistic.
Also I didn’t know the special servicer could discriminate as to terms among the various tranches…thoughts anyone?
The mortgage is cut into four different pieces. SPG paid interest on the two A notes through June, and the A notes ($200 million) would therefore still have been current in June. I couldn’t get any info on the status of the B notes. If SPG stopped making payments on them earlier, they would already be part of the June delinquency rate.
Hey Wolf, if you’re interested, here is another more local CMBS story to sink your teeth into: the Parkmerced complex in MRCD 2019-PARK and MRCD 2019-PRKC. Rarer story of San Fran multifamily having issues, with substantial land development rights on the line as well. Appears MF CMBS delinquency is trending upwards also
Malls are expensive places to buy things. Malls require huge amounts of expensive land for buildings and parking, and mall owners like SPG charged lessees a bundle, likely giving anchor tenants the “best deal.” The dream was “build it and they will come.” Some people like shopping in malls and paying a premium for the elegance and cache of the experience.
Others don’t prefer the mall shopping experience as much as they used too, with too many malls to shop in and e commerce. Simply put, the mall economic model overshot its market in terms of benefits. Thus, there will be some mall survivors. Just fewer. Same story for strip malls. Given more choices, some consumers prefer to shop from home, pay less or the same, and have had enough shopping fun. And fast food restaurants.
The e commerce economic model can sell goods, even with delivery costs, substantially cheaper than malls. Also, consumers are not doing so well, which may be a reason that voters seem to be angry about inflation and certain politicians. Life is good if a person is in the 1% or even the 10% club, but for many others, the road is rough with no hope for upside movement. The American economy, with heavy debt bingeing, has shot its economic shot and is running low on ammo.
Thanks Wolf, for the real economic news of the day!
Another consideration, how many people are really spending money zt the mall. Anecdotal from my neck of the woods, we go to the mall often as it has a play areas and ac (temps are in the 100s with jo relief). For these trios, we generally pack food for our girls, 1 and 4 and eat it in the food court. Only real expense is getting the kids ice cream. This seems like a similar pattern for some of the other regular parents, too. Costs for everything are up and our pay does not keep pace, at least for the things that matter.
I think most people spend quite a bit at the mall if they do go. It is a fun experience. The problem is that mall is expensive and when disposable income shrinks due to higher inflation, less trips to the malls are made.
Another problem for the mall is that people can and will “browse” but instead of a sale, it will result in “I can get these cheaper online”.
There’s even a term for that; showrooming.
Cannibalism and commodification this is.
Weak offspring are tossed under Darwin’s bus — and business models are evolving faster and faster — if you fall behind you die.
In terms of malls or shopping, these mall structures are like mines that are essentially decommissioned or capped oil wells that are unproductive — and of course, that’s the big driver in this, i.e, the malls are not producing cash flow.
In my mind, all these developers are their own worst enemies, because they overbuild capacity and continually rely on the perpetual motion machine of building obsolete structures.
The added dynamic is time and demographic trends — generational technology shifts that generate more efficiencies.
To me, this is also a story about “AI” — because groups of investors chase cash and they engineer new mines — find ways to exploit and extract revenue from some activity — but at the heart of this, is the tsunami of cash that ends up chasing each others consumers.
It’s a pie that gets cut into too many thin slices.
Too many malls trying to sell the same stuff to too few people, it’s backward inflation— there’s no shortage but instead, excess capacity.
The AI mine is similar, everyone hoping to extract something unique from the same place and pretend there’s scarcity — that’s the key metric in chasing cash — scarcity adds value.
Mall developers do not have scarcity and their underwhelming spaces have no future value.
One thing CRE and the oil industry have in common: they have no discipline, they will oversupply the market and crash prices.
They are their own worst enemies, as you say.
Our once ‘bankrupt soon’ huge mall was repurposed 15 years ago just before it went under. In fact, a huge warehouse was added. It now houses all the boats and RVs that cannot be parked in the new condo parking lots or new subdivisions that new wealthy blow ins live in, those people who sold up and fled cities like Toronto and Vancouver and reset on Vancouver Island. It also provides a place for the homeless to camp behind. A while ago I saw a guy showering up at a tap by the only remaining mall grocery store.
The situation; wealthy newcomers needing toy storage meet up with the displaced and addicted homeless, at the mall. Sign of the times.
Pardon my ignorance, but it seems to me that defaulting on such a large debt would adversely impact the credit worthiness of SPG. How would they ever find a bank or group of investors willing to give them money ever again?
That is an excellent question, I second it.
What bank/investor group is going to be the chump who hands over millions to Simon the next time they need financing?
Can you say Donald Trump. He bankrupted many times and yet was always able to get financing after those bankruptcies.
He had individual business deals go bk, which is somewhat common and why people use llcs. If a deal goes bad like you have a store lease in a mall but the owner keeps raising the rent and won’t let you expand to make those payments, you drain the llc of most of the money and let it go bk which breaks the lease. Happened to a friend’s dad whom had a pet store at a mall.
It is usually set up in the loan. If it is a “no-recourse” loan, than, the mortgaged property is the sole collateral for the loan, and the lender can’t go after SPG’s other assets.
Both the lender and the borrower understand the consequences should the collateral not be as valuable as the loan.
I’m curious, is there nothing wrong with the repeated phrase “walking away from debts”? Also, for context it would be very helpful to see what percentage of total retail sales are from e-commerce. What does a 90% explosion really mean? Will we end up with zero brick and mortar?
1. No.
FYI: “walking away from debts” was used only ONCE in the article, namely in the headline (there were two “walk/walked away from malls” – “malls” not “debts” – in the text of the article).
2. All you have to do is click on the link I gave you in the ecommerce paragraph of the article, and you would have found an article rich in info and data about the growth of ecommerce and the decline of non-ecommerce retail. Including these three charts, and all this is from the article you refused to click on because you were afraid of the vicious data?
https://wolfstreet.com/2024/05/17/ecommerce-still-hot-rest-of-retail-stagnates-walmart-us-ecommerce-sales-22-credits-convenience-for-success-with-higher-income-people/
The share of ecommerce sales rose to 15.9%, the highest since the lockdown miracle of Q2 2020, as ecommerce continues to eat an ever-bigger slice of the retail pie:
The rest of retail trade sales without ecommerce has close-to-stagnated for nearly two years, after the pandemic spike, despite inflation and population growth. In Q1, sales rose only 0.3% year-over-year to $1.53 trillion, seasonally adjusted.
In a moment, we’re going to get to Walmart – the second largest ecommerce retailer in the US, but far behind Amazon – which reported earnings yesterday. Ecommerce sales at Walmart US soared by 22%, and without ecommerce sales, comp sales would have inched up only 1%, reflecting reality on the ground:
And here are sales at brick-and-mortar department stores. … This illustrates an aspect of the phenomenon we have come to call Brick-and-Mortar Meltdown since 2016:
Part of retail has been sheltered from ecommerce attacks, but changes are underway:
“New-vehicle dealers (protected by state franchise laws except for Tesla and a few EV startups)”.” Theseslaws are anti-free market anti-American laws. I remember many years ago Ford wanting to sell direct via Sams Club or Costco and Chrysler in CA,
they got sued and shut down.
It always amazes me that the working class is so asleep at the switch there isn’t a revolt on this issue alone. … it’s all so hopeless.
Yes, these state franchise laws are terrible. They’re in the way of modernizing the way we buy new cars, and they make new cars more expensive. They probably solved a problem when they were first passed back in the day. But now they’re a problem.
Simon is a very greedy company that is getting what it deserves.
Simon is one of the very best managed companies and is very profitable.
The ‘very profitable’ comment is true and is exactly why businesses in malls are failing and shutting down at unprecedented rates as Simon bilks its lessees for all they got and more then they close down and simply go out of business. That’s not ‘well-managed.’
Predatory management.
Morningstar rates spg as exceptional management. If lessees can’t pay a fair rent, they should go out of business or go elsewhere.
You’re trying to demonize something because… it’s in business and trying to make a profit. If it’s egregious, then the market should respond by not accepting the terms. If it’s a monopoly or oligopoly, that’s a regulatory failure. Regulations are needed to protect the capitalist system – it isn’t the enemy of capitalism. If a company gets monopoly power, it will go on to become a dynasty, like all tyrannies, and eventually will be overthrown or beheaded.
I knew an upper level mall manager. They were as concerned about the solvency and ability for a tenant to do well and prosper as much as they were about making a profit. I’m married to a property manager. Her company is the same; they want to screen tenants who won’t make ends meet and still make a profit. If they demand inordinate amounts for rent, they’ll end up with high vacancies.
Demonizing is just trying to off-load your anger or frustration.
HowNow,
I’m not sure that was demonizing and you seem to be confusing property managers on a micro and macro level.
Local managers might be concerned about their tenants ability to survive, but if their bosses don’t care, those stores will still close because the rent is too high.
Simon has been criticized by industry insiders for decades. They are smart, and they have no scruples- as Wolf has proven with these jingle mail articles. This allows them to remain profitable and it isn’t their fault fools agreed to terms which benefited Simon.
I’m more partial to thinking demonizing is a moral judgment and it’s so easy to demonize a morally bankrupt company like SPG.
Ever since banks were no longer required to hold a portion of their loans, the world has become a shadier place. Crooks now get richer, with no downside, which is definitely not what they deserve.
Amen to that!
I agree completely – banks should be forced to eat their own cooking and keep a significant proportion of the loans they issue. If the Fed was legit, it would require more skin in the game for banks. If the Supreme Court were legit, they would call out the unethical actions of their colleagues. Oh well…
Under capitalism aren’t companies supposed to be greedy? They are literally designed to make money for their owners.
And before you go there, just know that although i am a capitalist. I believe in well regulated capitalism. I think companies should be looking to make the most money they legally can for their owners. However I also believe companies should be well regulated to temper the problems that come from companies only focused on the bottom line.
JimL-
Concerning the term “greedy”:
Somehow, when a labor union demands higher pay for its members (e.g. Teamster president’s RNC speech last night), the demand is “self-interested” but not “greedy.” “Greed” is subjective, and seems always to be applied to the other guy. (Confession: every year of my working life I have tried to increase my income and net worth.)
To me, capitalism is more about expanding consumer choices than it is about greed. Those who invent better choices for consumers are “rewarded” by their customers with revenues. Talented managers are allowed to convert those revenues to personal profit.
Concerning “well regulated”:
The world’s banking regulatory apparatus — through erroneous projections, sometimes questionable theories, ineffective rules, interest rate manipulation and bad timing — has allowed crisis after crisis, while promulgating unprecedented and unsustainable growth of systemic world-wide debt. “Regulation” too often falls on its face at controlling risk, while hindering consumer choice. Some regulation is necessary, but more regulation is not always the answer.
Respectfully.
The best regulation comes in the form of incentives for self regulation. For example, progressive corporate tax rates would increase competition and reduce aggregation. I’d rather have that than a bloated ineffective anti trust agency that has to go to three levels of the court system and be continually outgunned.
When a group of companies all agree to sell their goods for a certain price, that’s price fixing and is illegal.
When a group of workers all agree to sell their labor for a certain price, that’s unionization and is celebrated.
…and when a group of bankers and economists collude to effect the price of credit (i.e. interest rates), that’s monetary policy.
Your observations are on the mark, ShortTLT.
I see no difference between a union trying to maximize it members pay and a company trying to maximize their owners bottom line. That is capitalism. I am OK with both.
As for the rest of your post, I am for WELL-REGULATED capitalism. That could mean more or less regulation.
Thanks JimL. I misunderstood your reply to SCBD about “greed,” I think.
It’ll be interesting to see how the recent Chevron Deference ruling effects the regulatory plumbing in the US (including regulation of the US banking function). It seems to open the door for legal challenges to the innumerable regulations on the books in every industry.
Good news for lawyers, and maybe for consumers too.
Competition is the primary regulator in Capitalism—not shake down Government agencies. Monopolies need regulation when necessary-utilities ex.
“ Godfather of Modern Monetary Theory Says Government Is Spending Like a ‘Drunken Sailor,’ Lambastes Federal Deficit “.
Looks like Warren Molser was here 😀
Obviously folks will be chary about malls but re: Simon, there is no recourse in most large RE mortgages. If someone doesn’t like that, they should stick to govt bonds. The lender gets the prop back: period. Unless the mortgagor is a game player, and requires the servicer to go to court. Simon isn’t.
Note the big spin off was not by Simon to the public but to an outfit: Washington Prime Group, that sold shares to the public. Simon Property Group is responsible only to the shareholders of SPG. If it thinks an asset is likely to decline in value long- term, its duty to ITS shareholders is to move on.
Mr. Wolf: We went to malls so that we could see, touch, and obtain the product immediately in a relaxing atmosphere. Formerly, there was the Sears catalog with “good, better, best” that the Sears buyers truly discerned were actually that and the product would arrive relatively rapidly from the warehouse (today’s “fulfillment center” though staffed with the same warehouse workers (lol). I see no improvement other than an electronic catalog and somevlimited buyer pre-screening services although some vendors do list what is popular. What is going to happen is people will spend all their money on mostly food, transportation (actual vehicle not just fuel), and shelter with no discretionary left for e-commerce anyway; then they will go back to the paper catalogs as “wish lists “
“…with no discretionary left for e-commerce anyway;”
🤣❤️
A lot of these malls have ‘timed-out on the structural integrity of the reinforced concrete .. even in it’s day, one of their flagship malls, on a full Saturday, one could feel the flex in the floors, and that was 25 years ago. 50 years of hard cycling like that has it’s toll, along with the inevitable microcracking and it was made with a ‘calculated lifetime’ that should be part of the approved record.. Of course one could reduce the structure down to a single floor with a new roof.. with a robot crew.. LoL… where’s my robot?
I feel there is going to be so great opportunities in the mall space for discretionary buyers. Obviously not at the valuations of their current loans, but buyers with deep pockets can get some great deals.
I am not saying that the areas will continue to be used as shopping malls, but for most of them the land does have some value as they are often in great locations. Maybe they get converted to office space or residential. Whatever. Someone will figure out a way to unlock the value of a great location and they will make a killing buying these malls at depressed prices.
There are two types of malls I do see succeeding going forward.
The first is a mall filled with stores where service is just as important if not more important than the product they sell. Think Apple stores, phone stores or high end watch/jewelry/clothing stores. In these cases people go there for the service or it is a product that can’t be easily sold online.
The second type of mall is the entertainment mall. I see malls that are filled with bars, restaurants, movie theaters, night clubs, comedy clubs, and other forms of entertainment (casinos?, small concert venues, laser tag?….). These are places that will provide an all in one night out for couples or groups of friends. Go have dinner, go to a club and then hit a bar afterwards. With areas to walk around, sit, talk, etc they provide a synergy among having all of the entertainment for the night out in one area.
Obviously this would not include all current malls. There are too many and some are not in the right areas. Those will be repurposed into something else.
I just feel there is going to be lots of opportunity here for someone to pick up some great assets at cheap prices if they are willing to look upon them as more than just “shopping malls”.
Malls have huge parking lots and are cheap to bulldoze. A big mall has many acres of land. If they’re in a good location for housing, a developer can buy the mall, tear it down, and build lots of housing on that land, along with some retail, such as a grocery store plus some smaller stores. And this is being done right now, but it’s a slow process that can take years. In that case, the mall will sell for land value, which is just a fraction of the collateral value.
Will they sell for land value, or land value minus cost to remove the building? That can’t be cheap.
Unless the shopping center had a gas station on it, it’s cheap to remove the buildings, relatively, given the size of the land, most of which is parking lots with nearly nothing on it.
But taking down an office tower in the middle of downtown, surrounded by office towers on four sides, that’s expensive for a small plot of land.
All urban land that is being redeveloped has something on it. So that’s part of the deal.
Old gas stations are complicated because you have to pay for remediation of the contaminated soil beneath it. So lots of times, you cannot even give away the land of an old gas station. But if you build a high rise on that plot, that’s not such a huge problem because you have to dig down deep for the foundations and the parking garage anyway, and that takes care of part of the costs of soil remediation.
The value of the land is negotiated between buyer and seller. So whatever they agree on.
Near me they have bulldozed many malls and underutilized strip malls to build five story apartments with retail on main level. I’m not convinced the retail does that well in these new complexes. I don’t find them convenient, with street parking being a hassle. The ones that have parking offer crowded ramps with tight spaces to navigate. If a recession hits, I imagine these retail businesses could be hit hard.
Costco is 10x less stressful.
“Costco is 10x less stressful.”
Maybe for you (lucky you!). For me, Costco is THE most stressful place I go to, just behind, or maybe ahead, of the Endodontist for a root canal. The stress of crossing the city by car coming and going, the HUGE packed parking garage, the crowds inside, the family outings that clog up the areas where they give free samples, aisles you cannot get through because people have nothing better to do with their lives than clogging up aisles, the wait at the cashier, I HATE shopping at that place. I do it anyway, just like I get a root canal when I have to. But it’s very stressful.
I agree, about Costco. I’ve been a member for 34 years straight. Still a member but only for a few specific items and dread my once a month visit. And now, they’re pestering me almost daily with email ads. I think they’re going to kill their goose that laid its golden eggs.
I get my usual picks online with free COSTCO delivery. These are mostly nuts, lots of nuts. Going there seems like an adventure, lots of stamina required.
“I get my usual picks online with free COSTCO delivery”
The delivery is “free” but their online prices are higher than their in-store prices, so you’re still paying for it.
@Wolf
“Maybe for you (lucky you!). For me, Costco is THE most stressful place I go to, just behind, or maybe ahead, of the Endodontist for a root canal. ”
Similar here and for similar reasons like of what you say. It used to be a better shopping experience but the crowds, long lines, clogged traffic both by the cars and people inside and out.. has kind of ruined it. The lower prices seem to be outweighed by all the hassle and stress of it.
Not as bad as IKEA. Perfect representation of hell on earth.
I agree with all of that. I just think that mall land is more valuable than people realize because usually malls are in great locations and are huge. It is really hard to find large tracts of land in great locations.
Furthermore, I think there is still some “community meeting place” value to mall areas. For lack of a better description, people still like having large open spaces where they can walk and enjoy themselves. That used to be by shopping, but online killed that. I just feel like there is potential to spaces like that so someone will figure out a way to exploit that. I am not smart enough, but there is too much potential there and someone will make a killing.
Third, although this is a niche: sales tax arbitrage.
My local mall is right on the NH side of the MA/NH border; MA has 6.25% sales tax and NH has no sales tax.
Guess which state most of the license plates in this mall are from…
I am a very unsophisticated investor and I enjoy these articles and posts that give me more insight on how things work. Simon Property Group (SPG) stock is up over 20% in the past year and could do well if interest rates fall. Vanguard, State Street and BlackRock combined hold about 31% of the stock with the Central Bank of Norway’s sovereign wealth fund Norges Bank having 5%. It has been said that large index stock funds like Vanguard’s cause inertia and provide stock price stability to the markets over all and I suspect this also applies to asset classes like REITs and CRE and even individual stocks. I also suspect that firms like SPG are well diversified. I see that SPG has a deal to help BP create EV charging stations (BP plus).
I appreciate your continued coverage of the ongoing “Mallpocalypse” Wolf. Readers may find it instructive where the echoes of it may play out in the current CRE crisis, not least with regard to just how long the “extend and pretend” process can go on before it’s fully resolved.
8:06 AM 7/16/2024
Dow 40,782.34 570.62 1.42%
S&P 500 5,654.87 23.65 0.42%
Nasdaq 18,474.21 1.65 0.01%
VIX 12.99 -0.13 -0.99%
Gold 2,455.80 26.90 1.11%
Oil 81.09 -0.82 -1.00%
dow has now rallied 27% since the end of october based on rate cuts that haven’t even happened yet.
the same rate cuts are being priced in over and over again, and stocks, bitcoin, gold and everything else is now priced for zirp or even nirp, and certainly not a fed rate of 5%, even assuming two cuts this year.
the buffett indicator is now over 200%.
if the central banks consider it in their mandate to rein in speculation, they have failed spectacularly.
Here’s a great example of how a public mall is being transformed into a place for wealthy investors — pretty sad really, how these social centers are morphing into antisocial icons.
N.J. mall spending $500M to rip off its roof, developer says
“As part of the transformation, Kushner Companies is tearing down the vacant JCPenney and Lord & Taylor to make room for 1,000 luxury apartments. Officials said Thursday they were working to make sure Eatontown residents get the first opportunities to live in the new apartments.”
I think this is definitely a trend — supercharged by online dystopian social engagement and polarized communities that will focus future investments into more narrow projects, that have higher returns.
“pretty sad really, how these social centers are morphing into antisocial icons.”
What a ridiculous comment. These investors are replacing a zombie mall with 1,000 new housing units, this is EXACTLY what the US needs. You people complain about a housing shortage, high home prices, and high rents, and you people complain when investors fund the construction of new housing units. An overabundance of new housing supply is exactly what is needed to bring/keep prices/rents down.
Who else do you think is going to fund construction of new multifamily housing? Poor people? No, investors do, always have, always will, that’s what investment is all about, you put up a lot of money up front and hope for some kind of return through yield or sales years later. Sometimes this fails and the project goes bust and you lose your money. And sometimes it succeeds and you make some money. The main thing is to fund construction of new housing units.
I see there’s fairly decent balance in NJ for developing both fair housing opportunities and luxury.
As usual, apologies for my stupidity. Abandoned malls are ripe for redevelopment and good for communities. I was just ruminating about their social function.
“The Mount Laurel Doctrine refers to a series of landmark state Supreme Court decisions that outlawed exclusionary zoning practices and required all towns in New Jersey to provide their fair share of the region’s affordable housing.”
Lower income people rent in older cheaper apartment buildings that might have been promoted as “luxury apartments” many decades ago (1970s garden apartment complex with pool, for example). Same with cars. Lower income people generally don’t buy $100,000 new trucks. They buy a $20-year old truck that’ll do the job.
Wolf, any suggestions on how to bet against CRE? Some kind of inverse ETF?
I have not been in a mall in at least ten years. They could all disappear as far as I am concerned. I get my daily dose of shopping at my neighborhood H‑E‑B the greatest grocery store in the country!
What’s in any way special about a HEB? They’re a low-end grocery store that only has locations in Texas.
HEB has good selection and quality at affordable prices, which works for ordinary Texans.
You have clearly never been to an HEB.
This just goes to show how little you know about H‑E‑B. They also have 79 stores in northern Mexico. No grocery store in the country has a more devoted following.
No one in Texas would call HEB low end. They’re great stores.
Simon says, walk away.
Simon has essentially picked their best performing assets and committed all their attention/capital to them. If you’re a mall on their “give back to the lender” list, you have typically already been neglected from a leasing and capital improvements aspect for years. Stay classy, Simon.