Investors Make Risky Move on Rumored Closure of Malls


According to recent blog on Bernstein, the rumors of all malls closing are false. While some malls are in fact dying off, that is not the truth for the rest, and this creates some misleading investments opportunities.

There are a many reasons why malls are closing. Malls could close due to big department store closures, which brought in the bulk of their consumers. While some malls close with a big loss, others use the empty space for their advantage. Replacing those popular retail stores with another retail store and/or a popular restaurant could improve the livelihood of those malls.

Another reason for mall closures has to do with location. Malls in well populated cities and “high-tech metropolitan areas” are seeing growth. The malls located in suburbs that also have competing malls are the ones that will most likely close, but even then not all will close at the same time.

Malls also lose business to those who now prefer to shop online. People find it more convenient than stopping by the mall. Some malls have adapted to survive by adding entertainment to the mix. Rather than having the majority of their space filled with retailers, malls bring in movie theaters, bars, fitness centers, and other entertaining draw-ins.

Investors can benefit by looking more closely to which malls are actually “doomed”. There are malls that are in trouble of closing but some still see large profits covering their debts and promising a viable future. Investors that can differentiate the two could see some great opportunities.

Some investors are betting on malls to fail, making their CMBX.6 shorter. However in order to succeed, the loans need to experience a massive loss quickly which is considered a risky move for several reasons including:

  • Loans will experience lower default severity than expected
  • Losses won’t happen right away
  • Malls are only a fractions of the CMBX.6

For a more detailed read on the subject please click here.

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