If owners abandon the malls, these investors are screwed

CMBS could face major difficulties if mall loans aren’t refinanced before maturing next year
April 08, 2019 09:00AM

The strongest risk would be if borrowers abandon the malls to avoid foreclosure. (Credit: iStock)

The strongest risk would be if borrowers abandon the malls to avoid foreclosure. (Credit: iStock)

Commercial mortgage-backed securities could face high losses if struggling mall loans are not refinanced before maturing in 2020.

The strongest risk would be if borrowers abandon the malls to avoid foreclosure, according to Bloomberg, citing data from a research note written by Fitch analyst Huxley Somerville.

“When a mall goes bad, potential losses can exceed 60 percent of the loan amount,” Somerville wrote, “and the potential for zero recoveries is very real and have already been seen.”

The first loans issued after the financial crisis will begin maturing next year, meaning 2019 should give people an idea of what will happen in 2020. Fitch covers 15 mall loans in CMBS deals that are set to mature next year, and the agency is concerned about 10 of them.

Mall owners struggling with closing anchor tenants have been turning over keys to their properties before their leases end rather than looking into refinancing them. This has forced loan-servicing companies to either try selling the malls or running the malls themselves. [Bloomberg] – Eddie Small