Struggling Local Malls: Adapting Amid Valuation Challenges
Despite the overall strength of retail assets today, local malls have been experiencing a significant decline in value. Evidenced by Connecticut's struggling Crystal Mall, once valued at an impressive $150M in 2012, recently sold for a mere $9.5M. On the other hand, Class A malls have effectively responded to the changing demands of consumers by introducing new amenities and adjusting their offerings accordingly. However, local malls have failed to update their facilities and offerings, facing substantial setbacks, with some losing at least 50% of their value and others experiencing drops of over 70% compared to their peak valuations in late 2016, according to Vince Tibone of Green Street.
Compounding the difficulties, malls currently hold more than $14 billion in loans, and a considerable portion of these loans are set to mature within the next 12 months. The high probability of defaults, coupled with the challenges of refinancing due to soaring interest rates, casts a gloomy outlook for these assets. Alarmingly, nearly a fifth of all malls financed with CMBS are now worth less than the loans they were secured by. The pandemic further exacerbated the situation, as seen with Crystal Mall's previous owner, Simon Property Group, halting payments on $81 million of outstanding CMBS debt during that period. In addition, the closure of anchor stores, such as Macy's, Bon-Ton, JCPenney, and Sears, between 2018 and the end of 2020, accelerated the decline of local malls. While some malls have found new owners, like Namdar Realty Group taking over Crystal Mall, having a redevelopment plan might prove to be the most effective solution for these struggling properties.