It used to be the thing for teenagers and other shoppers to do -- hang out at the mall. Malls had a variety of stores, so just about anyone could find one they liked. However, recently, malls and other commercial retailers have been suffering financially.
Last year alone saw the liquidation of approximately $3.5 billion in retail loans. Malls have often depended on anchor department stores to keep them afloat. But, many of these department stores are having financial troubles of their own. With sales ever falling, many retailers are closing. In fact, the rate retailers are closing their doors has not been this high since the financial crisis of 2008.
This spells bad news for malls. Malls are dependent on these anchor department stores to bring in foot traffic to smaller stores. If an anchor store disappears, it leads smaller tenants to shut their doors as well, resulting in a cycle of blight. According to one hedge fund, this year may be a "tipping point." And, it is possible that as many as 40 percent of loans due in 2017 will go unpaid.
In addition, commercial real estate prices, which had been seeing an uptick since 2009 have started to stagnate. Moreover, since banks now must hold onto a minimum of 5 percent of loans they make under a new rule that became effective in December, this has also lead to a stall in loan growth.
In the end, one retail analyst predicts that approximately one-third of the malls in our nation may shutter over the next few years. This could lead lenders to suffer major losses and result in market uncertainties. While it remains unknown how this situation will play out, those who are interested in buying or selling commercial real estate should seek the advice needed to make sound decisions.
Source: Forbes, "These 3 Charts Show Why Commercial Real Estate Is The Next 'Big Short'," Olivier Garret, April 2, 2017