According to the news report by Bloomberg, US mall landlords are struggling to find tenants and have reached the point where they’re practically giving their malls away.
Due to the exponential growth in the e-commerce sector, US mall owners are trying to offload fading malls so as to focus on the more profitable ones. However, the challenge that they are facing is that there is a very small pool of investors who are willing to buy off poorly performing malls and an even smaller group who would be willing to pay the price that the landlords are asking for.
According to data from Real Capital Analytics Inc., in April, only $3 billion worth of sales in retail real estate took place, a 27% drop from the same time in 2017, and also the lowest tally in one month since February 2013.
Commercial real estate giants like Simon Property Group Inc. and GGP Inc. are spending billions of dollars upgrading their malls into centers that offer experiences that cannot be replicated online. These real estate behemoths have the capital to be able to transform the massive empty spaces left behind by failing department stores into attractions for the public.
However, lower-tier mall owners are not getting such happy endings. These malls are too far gone to be worth an expensive investment.
According to the CEO of Pennsylvania Real Estate Investment Trust (REIT), Joe Coradino, it’s a very tough environment right now. Nobody had expected the decline of department stores to take place so far and so hard. Coradino said the situation is so bad that sellers are now on their knees.
Based out of Philadelphia, the REIT has sold 17 malls of the lowest tier since 2013. The last mall that the Trust sold was the Logan Valley Mall located in Altoona, Pennsylvania, which had housed branches of Macy’s, JC Penney and Sears. The deal was completed in September last year, and the mall sold for $33.2 million. Coradino said that had that mall been sold today, the price they would have gotten would have been much lower. He said he was very happy he had been able to sell those malls when he did.
It wasn’t too long ago that the biggest private equity investors – such as KKR & Co. or even Starwood Capital Group led by Barry Sternlicht – were willing to pay top dollar for such properties.
Between 2012 and 2013, Starwood had bought a combined $2.6 billion worth of malls from Westfield, after which the company also bought 7 malls from Taubman Centers Inc. for $1.4 billion. KKR, from 2012 to 2014, purchased 4 regional malls for a sum of approximately $502 million.
KKR still owns 3 of those 4 malls and has spent millions in upgrading the one located in New York. The company then started put up the mall for sale since last year, but still hasn’t found any buyers. Similarly, Starwood also tried to sell some of the malls it had bought but has been unsuccessful so far.
According to Mizuho Securities USA LLC analyst, Haendel St. Juste, it is difficult to figure out exactly how many malls or retail properties are on the market since their owners prefer to remain tight-lipped, because otherwise they would need to field a lot of questions by investors about their progress.
According to Thomas Dobrowski, executive MD at the brokerage Newmark Knight Frank, there is a strong backlog of malls that REITs want to sell, however, these organizations need to take the decision to sell in this kind of a bear market.