Growing Foot Traffic and New Leases Not Likely to Save Shopping Mall Valuations

Sales have often proved the biggest lure by shopping centers to consumers. However, sales of shopping malls themselves portray a hefty markdown – the kind owners and investors are not lining up for.

New leases and increased foot traffic cannot save dying malls. For example, The Mall at Stonecrest, backing the only remaining loan in BACM 2005-C1, successfully backfilled two of its anchor spaces in 2021 to beauty superstore Lisa Young and aquarium SeaQuest. 

Still, a venture capital firm that was in advanced discussions to purchase the mall backed out of the agreement in July, according to a new Morningstar report. “The property was appraised for $67 million in July 2018, down from $144.5 million at issuance, and we believe the ultimate sale price may be even lower,” it said.

Malls remain the problem child of retail – improving vaccination rates be damned, the Morningstar’s Sept. 7 report “An Update on Malls The good, the bad, and the ugly for regional shopping centers,” ultimately finds. 

Malls continue to fare worse than the average retail property, with 15.2 percent of the CMBS malls delinquent or REO, compared to 10.5 percent across all retail loans. Additionally, 23.6 percent of malls are specially serviced, compared with 12.2 percent of all retail properties.

Occupancy is down. As of its most recent reporting period, average occupancy across CMBS malls fell 270 basis points from its previous reporting period. Although for some properties, the most recent financials date back to the height of the pandemic, this still demonstrates a clear negative trend.

Appraisal reductions continue to devalue properties. All mall appraisals since May 2021 valued the properties lower than previous appraisals. The value declines during the same period Simon posted strong earnings highlights the dichotomy between Class A malls owned by well-capitalized sponsors, and the older malls that have been weakening for years.