What 3 big mall bankruptcies say about the state of retail

Trio of restructurings produce wildly different results

New York /
Nov.November 10, 2021 11:30 AM

Strategic Value Partners’ Victor Khosla, CBL CEO Stephen Lebovitz and snapshots of mall properties from PREIT & Washington Prime Group (preit.com, washingtonprime.com, svpglobal.com, cblproperties.com, iStock)

In “Mallrats” — the quintessential movie about ’90s mall culture — a character is driven mad trying to find a sailboat hidden in a Magic Eye poster.

Assessing the state of American malls today can trigger the same frustration.

Three of the country’s largest mall landlords — all coping with similar problems even before Covid shuttered their doors last year — went into bankruptcy during the pandemic. But the trio emerged from their restructurings with wildly different outcomes, in some ways leaving more questions than before.

Some experts chalk up the divergent results to the companies’ ability — or lack thereof — to steer their properties toward relevance. How intact a mall owner comes out of the process depends on how much faith creditors have in its vision.

“It represents the investors’ belief in the likelihood of success,” said Michael Haas, co-head of the real estate group at the law firm Latham & Wakins.

The three mall owners — Pennsylvania Real Estate Investment Trust, CBL & Associates Properties and Washington Prime Group — were already flirting with bankruptcy prior to 2020.

Malls, especially the B- and C-quality properties that the three specialize in, were losing business to internet retailers and newer, higher-grade shopping centers. The pandemic just pushed them over the edge.

Pennsylvania REIT, which owns 20 shopping malls concentrated in the Mid Atlantic region, was the first of the three to enter bankruptcy, a year ago last November. It was relatively quick: In a little more than a month, the company reorganized and effectively kicked the can down the road.

Instead of reducing what it owed, as many companies do through bankruptcy, PREIT took on $150 million more debt and pushed back its maturity dates. But its equity investors were allowed to keep their stakes.

One explanation for the relatively painless process is that the company’s reimagining of its portfolio was well underway when Covid arrived.

“It was one of the first to be really aggressive trying to divest itself of those lower-performing properties,” said Carmen Spinoso of Spinoso Real Estate Group, which invests in and manages struggling malls. “They were ahead of the curve a bit.”

Next into Chapter 11 was CBL, which owns 44 malls in the Southeast and Midwest.

It also filed that November but only exited bankruptcy last week. The company reduced its debt by about $1.7 billion as investors handed over ownership to bondholders.

CEO Stephen Lebovitz called it a “fresh start” and said CBL is focused on shoring up its balance sheet.

“While the restructuring reduced overall interest expense significantly, a major priority is to continue to lower borrowing costs and enhance cash flow,” he said in a statement last week.

The last to enter bankruptcy was Washington Prime Group, which underwent the most drastic restructuring of the three.

The owner of 101 properties across the country filed for Chapter 11 protection in June. When it came out four months later the REIT was in the hands of distressed debt investor Victor Khosla’s Strategic Value Partners.

Washington Prime CEO Lou Conforti stepped down and Khosla de-listed the REIT from the New York Stock Exchange, taking it private.

Observers said Washington Prime’s portfolio may see the greatest overhaul, with properties being redeveloped or sold off.

“As a privately held company, there might be a bit less scrutiny and a little bit more flexibility,” Latham’s Haas said.

Bankruptcy and mall experts noted that the three restructurings might have less to do with the properties and more with the REITs’ ownership structures — whether debt investors could get enough control of a company to throw their weight around in bankruptcy.

The three companies are now preparing for Act II as they head into the crucial holiday shopping season and the post-Covid future.

Terrence Grossman, a director at the turnaround consulting firm AlixPartners, said mall landlords face the same strategic issues as before the pandemic. That is, trying to re-imagine their properties in a world of fewer retailers with fewer stores to occupy their malls.

“Even though the capital structures may be more conservative out of bankruptcy,” he said, “the real issue is making the economic model work, given the disruption and changing dynamics in the retail industry.”





    Related Articles

    arrow_forward_ios
    Sterling Organization managing principal and CEO Brian Kosoy and Coral Landings III at 6166 and 6200 West Sample Road (Sterling Organization, LoopNet)
    Sterling drops $37M for Coral Springs shopping center anchored by Best Buy
    Sterling drops $37M for Coral Springs shopping center anchored by Best Buy
    Brick + Timber principals Glenn Gilmore and Jesse Feldman and photo of the building at 2724 and 2734 Northwest First Avenue in Wynwood (LinkedIn, FutureVision Studios)
    Brick & Timber Collective is piling up Wynwood properties, pays $9M for new office/retail building
    Brick & Timber Collective is piling up Wynwood properties, pays $9M for new office/retail building
    Cabot Properties' Franz Colloredo-Mansfeld with Miramar Centre Business Park (Cabot, iStock) Lease, Logistics
    Lease roundup: Ryder Logistics leases 150K sf at Miramar Centre Business Park
    Lease roundup: Ryder Logistics leases 150K sf at Miramar Centre Business Park
    Conlon & Co's Sean Conlon with 206 Clematis Street (Loopnet, Conlon)
    Sean Conlon pays $18M for historic apartment and retail building in downtown West Palm
    Sean Conlon pays $18M for historic apartment and retail building in downtown West Palm
    Worth Capital’s Charles “Rusty” Holzer and 13501 South Shore Boulevard in Wellington (Getty, Google Maps)
    Wellington real estate investor pays $16M for shopping center in own backyard
    Wellington real estate investor pays $16M for shopping center in own backyard
    Dacar Management's Alberto Micha-Buzali with Residences and Shoppes (LinkedIn, Dacar Management)
    Dacar scores $81M loan for Publix-anchored mixed-use project in Hialeah
    Dacar scores $81M loan for Publix-anchored mixed-use project in Hialeah
    Pebb Capital's Todd Rosenberg with 4000 Collins Avenue (Loopnet, iStock)
    Pebb JV sells CVS-anchored retail space in Miami Beach for $18M
    Pebb JV sells CVS-anchored retail space in Miami Beach for $18M
    The shopping center at 12495 Southwest 88th Street (Frontier Companies)
    Frontier pays $18M for Best Buy-anchored shopping center in Kendall
    Frontier pays $18M for Best Buy-anchored shopping center in Kendall
    arrow_forward_ios

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

    Loading...