Credit Issues Stalk Malls And Anchor Tenants

With malls reopening in most states over the weekend an early reckoning with pandemic reality among mall owners and anchor tenants is underway. The traffic over the past week and weekend varied from lines at the door to ghost towns inside. At least one real estate company took the time to issue a warning within the optimism of the past week.

On the optimistic side Elliot Nassim, president of Mason Asset Management, which co-owns the University Mall in Carbondale, Illinois, says: “We have always felt that the retail industry is evolving, despite what doomsday headlines would have you believe. We understand the landscape is changing, and it is our goal to work with each and every property to evaluate the offerings, leveraging tenants outside the traditional retail sector.”

Nassim believes malls will continue to draw consumers but not to visit the anchor tenants like Macy’s and JCPenney. “Today’s malls are not only anchored by department stores, but include entertainment, health care and fitness studios — and this is the vision we see for our properties, as well. This creates an exciting opportunity for the communities that surround these properties.”

The warning, on the other hand, came from Arthur Linfante, managing director of the Northern New Jersey office of Integra Realty Resources. Writing in NJ Biz, Linfante points to the mall anchors and other tenants that have already closed, expressed financial concerns or filed for bankruptcy that will lead to significant challenges will be faced by regional malls. Among the thorny issues: Macy’s, JCPenney and Neiman Marcus and inline tenants such as Forever 21, J.Crew, JoAnn Fabrics, Steak ‘n Shake, California Pizza Kitchen, David’s Bridal, Ascena Retail Group (Lane Bryant, Justice, Loft and Ann Taylor), GNC and Pier 1 Imports. Linfante notes that many of these retailers are typical mall tenants and, in some cases, major junior anchor stores. Of the 125 restaurant or retail companies tracked by S&P Global Ratings, about 30 percent have a credit rating that suggests about 50 percent of them could default on their debts, which could be a precursor to more serious financial issues.

“The existential threat facing regional malls is the instability of anchor department stores. Once seen as the least risky tenant of all, they are now the greatest question mark. The decline of the department store was at the center of retail change well before COVID 19 pandemic. Department store closures and bankruptcies have been ongoing for some time. Green Street Advisors predicts more than 50 percent of all department stores will close by the end of 2021,” Linfante says. “The failure of anchor stores is critical in several ways. Anchor stores were typically occupied by tenants with high credit ratings that provided marketing stability and foot traffic into the mall. Second, department stores are the predominant occupant in most malls and many inline stores have clauses that allow them to terminate their lease in the event the anchor store closes. The tale of woe (or whoa!) can go on forever.”

There is another side to the mall and anchor tenant crisis. Malls and shopping centers across the country provide $400 billion in local tax revenue annually, according to the International Council of Shopping Centers. There are about 1,000 malls — both privately and publicly held — operating in the U.S. today, according to commercial real estate services firm Green Street Advisors.

“I worry a lot as this crisis plays out,” ICSC CEO Tom McGee told CNBC. “Our industry funds everything from the fire and police to [local] infrastructure.”