U.S. mall values fall 60% after appraisals

The suburban mall that you frequented as a teenager could now be worth substantially less than the dirt underneath it.

U.S. mall values declined 60 percent due to appraisals in 2020, according to an analysis by Bloomberg News. Across 118 shopping centers with commercial mortgage-backed securities loans, about $4 billion was lost after reappraisals caused by delinquencies, defaults or foreclosures.

The data suggests a grim outlook for many malls across the country as some of the largest mall owners, including Brookfield Property Partners and Simon Property Group, are increasingly walking away from underperforming properties and handing them over to their lenders.

In some cases, malls are being foreclosed on with almost no interest from outside investors. A recent foreclosure auction of a Simon mall outside of Atlanta yielded no bids despite a previous valuation of $322 million.

In Connecticut, a portion of a shopping center owned by Simon recently saw its value drop by 88 percent after an appraisal.

Many of the lower-tier malls that will be sold will likely be redeveloped into something else, according to industry experts.

“The orange tile and brown carpeting is just going to be torn down and plowed under and eventually trade at a price someone can build something else there,” Jim Costello of the research firm RCA told Bloomberg.

But it’s not just lower-tier malls that are in trouble: The valuation of Class-A malls fell by nearly half since 2016, according to a recent report by Green Street.

Mall traffic has dropped significantly across the U.S. because of Covid restrictions and consumer hesitation, which has accelerated the shift toward e-commerce that was already in place. Some retailers have also declared bankruptcy or stopped paying rent on their mall space, further squeezing operators.

[Bloomberg News] — Keith Larsen