It’s not all doom and gloom though. Some mall owners saw the writing on the wall early and used the short window of easier lending conditions and high shopping demand to refinance under more favorable rates and extend their payment deadlines.For instance, the Macerich Co. scrambled to close refinancing deals on several of its maturing loans before the economic headwinds ramped up this year. Like other malls, Macerich has seen occupancy rates recover after being crushed by the pandemic. The company last year managed to extend loans or refinance with fixed rates or rate caps for several of its most important properties. It negotiated a three-year extension on a $300 million loan on its prized Santa Monica Place in California, giving it time to fill in empty anchor stores with experiential art exhibition company Arte Museum and the popular Taiwanese dumpling chain Din Tai Fung.Simon Property Group Inc. is among those that focused on high-quality properties well before the pandemic shook the industry. Its dominant position in productive, class A malls “runs counter to the view in some circles that malls are dinosaurs destined for extinction,” Bloomberg Intelligence analyst David Havens wrote last month. “That may be valid for vulnerable class B and C malls losing tenants and anchor department stores.” No doubt there are many mall operators less prepared for the rough economic waters ahead. Take CBL & Associates Properties, which represents some of the challenges facing mid-tier malls. It was slow to pivot to a growing economic divide between wealthy and middle, and low-income shoppers even as peers like Macerich picked a lane. As mid-market retailers floundered, the company hung on to tenants including Victoria’s Secret & Co. and Gap Inc. The pandemic threw the company into bankruptcy and while it emerged with a cleaner balance sheet, it continues to struggle. By the end of 2022, it lost three of its malls to receivership and foreclosure.
CBL malls aren’t alone. The American Dream mall, owned by Canadian mall developer Triple Five Group, was sued by bondholders after it refused to make more than $8 million in interest payments. Malls are a deeply local business which means even strong national operators have weak assets. For instance, Unibail-Rodamco-Westfield, which owns a portfolio of high quality mall properties, missed its deadline to pay off a $195 million loan on its Valencia Town Center mall in Santa Clarita, California, as occupancy rates dragged down sales. Unibail-Rodamco-Westfield expects to sell the property or let it fall into foreclosure, according to its annual report.
The mall business can’t survive without access to debt. But mall owners will need to carefully balance servicing debt with investing in their properties to keep sales afloat. As CBL notes in its annual report, “significant debt payment obligations” could force them to use a large chunk of their cash flow to pay down debt rather than invest in capital expenditures. More debt, less investments to update drab, underperforming malls doesn’t sound particularly sustainable.
For a long time, malls have been siphoned into winners or losers. It was clear heading into the pandemic that losing malls would likely die off and find a second life as apartment buildings or healthcare offices. While some of these malls have managed to hang on, this latest upheaval will likely see the debt-burdened operators buckle. For those that are still lagging behind in correcting their business, the mall doors are quickly closing in front of them.
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Leticia Miranda is a Bloomberg Opinion columnist covering consumer goods and the retail industry. She was previously a business reporter at NBC News and a retail reporter at BuzzFeed News.
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