The Real Deal Miami

Malls dying slower death than some investors anticipated

CMBS loans tied to malls aren’t defaulting as quickly as short-sellers would like
January 10, 2018 10:30AM

Vacant mall

The bell tolls for traditional retail malls, but investors betting against debt in the sector haven’t seen the gains some thought they’d see by now.

Amid increasing competition from online retailers, shifting consumer trends, and empty malls, investors have looked to the CMBX 6, a credit default swap index that tracks bonds backed by mortgages on malls among other properties. Yet, so far only four loans tied to the index have incurred a total of $4.3 million in losses, according to the Wall Street Journal.

Nationwide, malls certainly aren’t doing well by any stretch, but they at least appear to be dying a bit of a slower death. Some landlords have refinanced debt, others have found traditional replacement tenants, and some reinvented their properties for “experiential” tenants.

Some portions of the CMBX 6 has offered some opportunities for short-sellers, though. The parts of the index rated BB and BBB- drooped 12.1 percent and 9.5 percent, respectively in 2017, according to the Journal.

There are more opportunities for those willing to wait. A report by Alder Hill Management, a New York-based investment firm, predicted that 26 out of the 40 loans tied to mall properties on the CMBX 6 would default by 2022. [WSJ] – Dennis Lynch