NEW YORK CITY—Even as retail's long-term prospects appear strong, it can't be denied that the sector bore a resemblance to Cape Hatteras this past year, in the sense of being littered with the shipwrecks of store concepts that sank into bankruptcy. As one measure of this culling of the weakest members of the herd, some $35 billion of CMBS faces exposure to the 11 largest bankruptcies to occur in 2017, according to Trepp LLC.

More than one-third of that total is concentrated in a single operator that filed for Chapter 11 protection this past January and subsequently closed all 250 of its brick-and-mortar US locations. The Limited, which subsequently was acquired by private equity firm Sycamore Partners and later relaunched as an e-commerce brand, figures in about $14.7 billion of securitized debt across 127 notes, Trepp says. That being said, Trepp notes that the majority of these loans are collateralized by large regional malls that didn't feature The Limited as one of their five largest tenants by square footage.

By exposure to CMBS debt, the sector's second-largest bankruptcy filing this year was by a retailer that is still open for business this holiday season. Trepp says that a total of $5.6 billion in CMBS debt is exposed to retail properties that feature Toys “R” Us or Babies “R” Us as a top-five tenant.

Others in the top 11 included Gymboree (tied to $5.4 billion of CMBS loans), Payless ShoeSource ($3.9 billion), RadioShack ($2.4 billion), hhgregg ($1.8 billion), Rue21 ($1.7 billion), Gordmans ($944.3 million), Gander Mountain ($432.3 million), MCSports ($417.2 million) and BCBG ($164.9 million). Trepp notes there were also several large bankruptcies not tied to CMBS, including Styles For Less, Aerosoles, Perfumania, True Religion, Wet Seal and Alfred Angelo Bridal. Moreover, although neither Sears Holdings, JCPenney nor Macy's sought Chapter 11 protection this year, among them the three department stores shuttered more than 500 locations during '17.

Down the road, Trepp says attention is turning to mall loans. “Since middle-market department stores have generally gone out of style, the class-B or lower malls that they tend to anchor have become obsolete,” according to Trepp. “On the other hand, class A malls boast record high occupancy levels and rents, as well as waiting lists of new tenants that want to lease their retail space.”

Citing research from Chilton Capital Management, Trepp points out that many class A malls are now surrounded by high-end residential, hotel and office properties that further enhance the mall experience. “Developers and owners have also been proactively investing large sums of capital to enhance the physical layout of class A malls that will improve the shopping experience, adding more dining and entertainment options, and diversifying tenant bases,' says Trepp.

Trepp notes that as much as 15% of existing mall supply is likely to close or be repurposed over the next decade. The lion's share of that surplus, though, derives from class B and C assets.

“On the positive side, it appears that consumers still favor class A malls, as well as specialty and freestanding retail shops,” says Trepp. The downfall of department stores and other struggling big-box retailers will continue make space for the rise of newer, more digitally-adept retailers and ecommerce's growing market share. The new slew of retailers that will succeed in the digital age will likely be characterized by fast production times, strong digital platforms, competitive last-mile delivery services and experiential aspects within their brick-and-mortar presence.”

Instant Insights /

Ch. 11 Filings Tied to $35B of Retail CMBS

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