[1/25/17] Mall property values are shrinking in many areas of the U.S., and landlords are increasingly throwing in the towel when they get underwater, according to The Wall Street Journal, which detailed such financial decisions at a host of troubled malls nationwide. Last year, from January to November, 314 loans secured by retail property — totaling about $3.5 billion — were liquidated, a rise of 11% from the same period in 2015, according to data from Morningstar Credit Ratings cited by the Journal. The loans were some $3.5 billion in total and liquidations meant a loss of $1.68 billion.
Retail property loan delinquencies rose by 0.6 of a percent point to 5.76%, according to data from real estate research firm Trepp LLC cited by the Journal. “Special servers” that handle troubled commercial mortgage securities took on $3.1 billion worth of retail property-backed loans last year, up from $2.9 billion in 2015, Trepp said.
Larger landlords aren’t necessarily paying for their moves in their credit ratings, though. “It doesn’t negatively impact their corporate credit quality,” Steven Marks, Fitch Ratings’ U.S. REIT group chief, told the Journal. “If anything, we oftentimes view these transactions positively, as it indicates financial discipline to not commit corporate capital towards failing or uneconomic investments.”
The economy has steadily gained steam, but a lot of retail commercial real estate still looks like what consumers went through at the time of the Great Recession, when homeowners found their mortgage debt outpacing their homes’ value. The trouble comes as malls below the top tier are being squeezed by a retail environment that includes falling store traffic, changing consumer tastes and rising e-commerce sales. Financing for these malls is also becoming more difficult because landlords have fewer options than they did a decade ago.