Dive Brief:
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Some $47.5 billion of loans backed by malls and other retail properties are coming due in the next year and a half, according to a report from Bank of America Merrill Lynch, Bloomberg reports.
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Skittishness about department store prospects, the rise of e-commerce, and the shopping-mall model are making lenders leery, making re-financing difficult and more expensive.
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That situation could accelerate closings of mall properties that contain too many struggling stores, are in less-than-ideal locations, and/or haven’t been renovated in years.
Dive Insight:
Earlier this year, Green Street Advisors suggested that department stores will have to close hundreds of additional locations in order to recapture previous levels of productivity—something that could decimate malls. And retail analyst Jan Kniffen last month told CNBC that while there are some 1,100 enclosed malls in the U.S., that number should closer to 700. “The top 250’ll do fine, and the rest of them are going to struggle,” he noted.
This is a common sentiment among analysts, as malls below the top tier are being squeezed by a retail environment that includes falling store traffic, changing consumer tastes, and rising e-commerce sales. Financing for these malls is also becoming more difficult because landlords have fewer options than they did a decade ago.
“The criteria to get financing is getting a little bit more stringent and cutting off the lifelines for some of these malls,” DJ Busch, a senior analyst at Green Street, told Bloomberg.
But not all malls are struggling. Simon Property Group in April burnished its full-year forecast in April that beat expectations, leading CEO David Simon to push back against the widely-held notion that American malls are dying. He also dismissed the threat posed by e-commerce, saying “The Internet is not the panacea.”
Other people aren't so sure. Tad Philipp, an analyst at Moody’s Investors Service, suggested to Bloomberg that e-commerce will indeed continue to take its pound of flesh.
“For many years, people thought the retail business in the U.S. was a bit overbuilt,” Philipp told Bloomberg. “The advent of online shopping is kind of accelerating the separation of winners and losers.”
