There are about 1,000 malls remaining in the U.S, and roughly 60% of them have department store retailers as anchor tenants. Green Street Advisors predicts that more than half of these big-box retailers will close permanently by the end of next year.
J.C. Penney, Macy’s, and Sears anchor 41% of all malls in the country.
- By the numbers: J.C. Penney has more than 850 stores representing 19% of mall anchor space. Macy’s boasts 551 locations representing 18%, while Sears has 547 stores representing 4%. Other department store operators (i.e. Nordstrom, Dillard’s, and Lord & Taylor) make up another 20%.
- Distress ahead: One likely scenario to play out at malls is that in-line tenants (e.g. Gap or Victoria’s Secret) will use their co-tenancy clauses as department stores go dark. These clauses give companies the ability to demand rent relief, or to break leases early, when anchor space sits vacant, CNBC noted.
- Worth Noting: J. Crew filed for bankruptcy protection today. The retailer has been in negotiations with lenders on how to handle its debts for weeks.
- Carl Icahn starting to cash in on the “big retail short”: As we’ve noted, the CMBX 6 index (BBB- or BB) tracks the value of 25 commercial-mortgage-backed securities. The index has significant exposure to loans made in 2012, and due in 2022. Icahn’s short has gotten so large in recent months that it now represents 25 percent of his total assets of $20 billion,
- Be Smart: AllianceBernstein is on the other side of the trade, and has sold about $4 billion worth of protection against mortgages owed by American shopping centers and other commercial borrowers. The firm published a paper last October entitled “The Real Story Behind the CMBX. 6: Debunking the Next ‘Big Short’”, which disappeared from their website. It reappeared after the Financial Times asked about it.