How will retail bankruptcies impact CMBS and REITs?

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

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

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

Ricky's at 830 Broadway (Credit: NYC Go)

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”

Brookfield Asset Management CEO Bruce Flatt

“We underwrite every investment like we’re going to hit a recession”: Brookfield CEO

Cadre founder Ryan Williams and Allen Smith

Cadre brings on former Four Seasons CEO as president

AKS Capital Partners Managing Partners Aaron Appel and Walker & Dunlop CEO Willy Walker

Walker & Dunlop acquires Aaron Appel’s AKS Capital Partners

From left: Publisher and founder Amir Korangy, Editor-in-chief Stuart Elliott and VP of Corporate Development Yoav Barilan

TRD’s founders share war stories from over the years

As the years go by_A look back at 17 years of real estate history

A look back at 17 years of real estate history