Things are not looking good for America’s shopping malls. General Growth Properties Inc, the second largest mall owner in the U.S., has missed a $144 million dollar loan payment.This delinquency marks the beginning of the end for America’s favorite shopping destinations. According to Bloomberg almost $50 billion dollars in retail property loans will be due in the next 18 months spelling doom for Americas dying shopping malls, strip malls and struggling retailers.
Suburban Detroit’s Lakeside Mall, with mid-range stores such as Sears, Bath & Body Works and Kay Jewelers, is one of the hundreds of retail centers across the U.S. being buffeted by the rise of e-commerce. After a $144 million loan on the property came due this month, owner General Growth Properties Inc. didn’t make the payment.
The default by the second-biggest U.S. mall owner may be a harbinger of trouble nationwide as a wave of debt from the last decade’s borrowing binge comes due for shopping centers. About $47.5 billion of loans backed by retail properties are set to mature over the next 18 months, data from Bank of America Merrill Lynch show. That’s coinciding with a tighter market for commercial-mortgage backed securities, where many such properties are financed.
For some mall owners, negotiating loan extensions or refinancing may be difficult. Lenders are tightening their purse strings as unease surrounding the future of shopping centers grows, with bleak earnings forecasts from retailers including Macy’s Inc. and Nordstrom Inc., and bankruptcy filings by chains such as Aeropostale Inc. and Sports Authority Inc. Older malls in small cities and towns are being hit hardest, squeezed by competition from both the Internet and newer, glitzier malls that draw wealthy shoppers.
“For many years, people thought the retail business in the U.S. was a bit overbuilt,” said Tad Philipp, an analyst at Moody’s Investors Service. “The advent of online shopping is kind of accelerating the separation of winners and losers.”
Landlords that can’t refinance debt may either walk away from the property or negotiate for an extension of the due date. It can be hard to save a failing mall, leading to high losses for lenders on soured loans, Philipp said.