How will retail bankruptcies impact CMBS and REITs?

Moody's says store closures will only have “limited” effect

TRD New York /
Aug.August 15, 2017 10:00 AM

Retail vacancies (Credit: Loozrboy via Flickr)

Retailer bankruptcies are expected to only have a “limited” impact on CMBS loans and real estate investment trusts, according to Moody’s.

The rating agency said that despite challenges facing the retail sector, the risk to CMBS and REITs, along with collateralized loan obligations and asset-backed securities on credit card loans, are “marginal because exposure is relatively low, and the retail distress is concentrated in particular types of retail companies and real estate,” the Financial Times reported.

Moody’s estimates that 2.1 percent of the CMBS it grades and only two of the 22 REITs it tracks are exposed to struggling shopping malls and weak centers. And only about 6 percent of commercial real estate-backed collateralized debt is exposed to retail.

“Retail is clearly going through some stress, if not distress,” said Michael Temple of Pioneer Investments. “The question is whether there will be waves that cascade into other markets and the broader economy.”

Competition from e-commerce, along with loads of debt and over-stretched footprints have led to 24 retailers falling into bankruptcy this year, according to S&P Global Market Intelligence. That’s already ahead of the total of 18 bankruptcies for all of 2016.

Still, others were not so convinced that the so-called “death of retail” will have only limited impact on real estate.

“The bad things that have happened to retail have a substantial negative impact on owners of retail real estate,” said Jim Sullivan of research firm Green Street Advisors. “And the owners of retail real estate are in trouble. We have seen malls closed and we will see more close.”

Vornado Realty Trust CEO Steve Roth recently told investors that most retail in the country “needs to disappear,” and said that opportunistic investors will make fat returns from the downward spiral of retail. [FT]Rich Bockmann


Related Articles

arrow_forward_ios
Clockwise from top left: 312 West 34th Street, 61 North 9th Street, 639 Classon Avenue, and One Fulton Square (Credit: Google Maps)

These were the top 10 NYC retail leases in July

These were the top 10 NYC retail leases in July
Ricky's at 830 Broadway (Credit: NYC Go)

Ricky’s, iconic NYC beauty shop, faces
more closures

Ricky’s, iconic NYC beauty shop, faces
more closures
From top, clockwise: Cushman & Wakefield's Joanne Podell, Showfields' Amir Zwickel, Appear Here's Josh Yentob, Brookfield Properties's Mark Kostic (Credit: Getty, LinkedIn)

When it comes to retail, “real estate in New York is fundamentally broken”

When it comes to retail, “real estate in New York is fundamentally broken”
For the first time since the start of the coronavirus crisis, the percentage of CMBS loans that are more than a month behind on payments has gone down. (iStock)

TRD Insights: CMBS delinquencies decline as borrowers get relief

TRD Insights: CMBS delinquencies decline as borrowers get relief
28 Liberty Street (Wikipedia)

Manhattan’s office leasing sees busiest month since January

Manhattan’s office leasing sees busiest month since January
Maison Kayser (Photo via Tools of Men via Flickr)

Maison Kayser may bid New York adieu

Maison Kayser may bid New York adieu
Congressman Al Lawson and Van Taylor (Lawson by Bill Clark/CQ-Roll Call, Inc via Getty Images; Taylor by Thomas McKinless/CQ Roll Call)

Congress pitches relief to struggling hotel, mall CMBS borrowers

Congress pitches relief to struggling hotel, mall CMBS borrowers
"Our role as owner is shifting from what was solely ‘the librarian’ — collecting rent, renting shops and cleaning spaces — to becoming an ‘editor’ of the space.” (iStock)

Welcome to a world of the à la carte retail lease

Welcome to a world of the à la carte retail lease
arrow_forward_ios

The Deal's newsletters give you the latest scoops, fresh headlines, marketing data, and things to know within the industry.

Loading...