How will retail bankruptcies impact CMBS and REITs?

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

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

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


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