Friday, May 22, 2009

WSJ: Recession Turns Malls into Ghost Towns; "Dead Malls" to Grow to 100 Nationwide

As with everything the past 10 weeks, the following is simply for entertainment purposes. Of course mall based REITs are among the best performers of the past few months as everything (and the sun) is "priced in". And the Federal Reserve is now expanding TALF to allow nearly every loan under the sun to be shielded from reality.

This story in the Wall Street Journal focuses on malls which we've touched on many times in the past - as far back as late 2007 before it hit the public conscience [Nov 27, 2008: AP - Malls, Hotels Next Victims in New Mortgage Crisis] [Dec 2007: Credit Downturn Hits Malls] But fast forward to present day USSA and our troubles are gone; everything is backstopped (and the banks are fine too, did you see that cool stress test?) - so this sensationalist piece by a newspaper simply looking for readers can be quickly tossed aside as hyperbole. ;) Buy stocks, especially of the mall based REIT kind; our tax dollars are shielding you from losses. Even if America has 6x more retail space than any other nation on Earth... it's ok, our tax dollars make sure we have zombie banks and zombie malls...

Just remember, as we scoff at malls emptying out [Feb 2, 2009: NYT - Our Love Affair with Malls is on the Rocks] and auto dealerships closing (each dealership averages 53 employees -green shoots!) all of these are job centers for many local communities. But apparently we don't need jobs as we have paper printing prosperity. [Oct 18, 2008: CNNMoney: Mall's Demise Could Doom Communities]

Remember if you want to see if you have a zombie mall in your area that our collective tax dollars will now try to prop up via Federal Reserve program number 462,128 go here

Just remember, we are not Japan.
  • Malls, those ubiquitous shopping meccas that sprang up in the 1950s, are dwindling in number, with many struggling properties reduced to largely vacant shells.
  • With their maze of walkways and fast-food courts, malls have long been an iconic, if sometimes unsightly, presence in the American retail landscape. A few were made famous by their sheer size, others for the range of shopping and social diversions they provided.
  • But the long recession is helping to empty out the promenades. Some analysts estimate that the number of so-called "dead malls" -- centers debilitated by anemic sales and high vacancy rates -- will swell to more than 100 by the end of this year.
  • In the 12 months ended March 31, U.S. malls collectively posted a 6.5% decline in tenants' same-store sales, according to Green Street Advisors Inc., a real-estate research firm. The recent slump was led by an average 7.3% sales drop at Simon Property Group Inc., the operator with the largest number of mall locations.
  • The industry's woes are worsening. Thinning customer traffic, and subsequent hits to tenants' sales and profits, prompted Standard & Poor's Corp. last month to lower the credit ratings of the department-store sector. That knocked Macy's Inc. and J.C. Penney Co. into junk territory and pushed others deeper into junk. Sears Holdings Corp., a cornerstone tenant at many malls, is expected to close 23 stores this month and next.
  • The severity of the recession is turning some malls that were once viewed as viable into potential casualties. "Any mall that's sitting on life support is probably going to get its plug pulled" as the economy stalls, says Michael Glimcher, chairman and CEO of Glimcher Realty Trust, which owns 23 U.S. properties, including Eastland Mall in Charlotte.
  • One industry rule of thumb holds that any large, enclosed mall generating sales per square foot of $250 or less -- the U.S. average is $381 -- is in danger of failure. By that measure, Eastland is one of 84 dead malls in a 1,032-mall database compiled by Green Street.
  • If retail sales continue to decline at current rates, the dead-mall roster could exceed 100 properties by the end of this year, according to Green Street. That's up from an estimated 40 failing malls in 2006, before the recession began.
  • "This time around, because of the dramatic changes in consumer spending practices, we're very likely to see more malls in the death spiral than we've ever seen before," says Green Street analyst Jim Sullivan. (not if our tax dollars have anything to say about it! Throwing good money after bad is now something the rogue Federal Reserve says is just - and we can't do a darn thing about it... )
  • These pressures, coupled with landlords' difficulties refinancing debts in the bone-dry capital markets, signal tough years ahead for retail-property owners -- even after consumer spending begins to rebound. "The shopping-center bankruptcies and the REIT bankruptcies are the ticking time bomb that people aren't talking about," says Burt P. Flickinger III, managing director of Strategic Resource Group, a research firm. (no Burt - we're talking about it, but it's "priced in" and "old news" since whatever disaster comes down the road, we'll print money from thin air to solve it. Stop worrying about the free market, that is so 1997)
  • Hundreds of other anchor stores -- generally two- and three-story department stores that drive mall momentum -- are pulling out of properties. Several anchor chains, including Gottschalks Inc., Goody's Family Clothing Inc. and Boscov's Department Store LLC, filed for bankruptcy protection in recent months.
So as we've gotten rid of manufacturing capacity (that's for backwards 3rd world countries i.e. Germany) and instead transformed into a "dynamic 1st world economy" based on shopping and home building, this is the price that is paid ... that is, when the government allows failure.
  • For towns and cities that are home to dying malls, the fallout can be devastating. Malls hire hundreds of workers and are significant contributors to the local tax base. In suburbs and small towns, malls often are the only major public spaces and the safest venues for teenagers to shop, hang out and seek part-time work.
Live by "consuming is 70% of your economy", die by "consuming is 70% of your economy".

Solution: print money, spread it to your citizens, let them borrow at incredibly low rates - and declare prosperity reigns. Easy money has worked wonders in both housing and cars this decade (when you run out of people that can actually afford things, make money even cheaper) - I am sure as we apply this exact same theory to the entire US economy the same fantastic outcome will happen. Now go forth and prosper (and shop at your mall!)

[May 6, 2009: Simon Property Group (SGP) Dilutes Shareholders for 2nd Time in 2009]
[Apr 16, 2009: General Growth Properties (GGP) Files for Bankruptcy]
[Apr 3, 2009: US Office Vacancies Surge, Rents Biggest Drop in 7 Years]
[Mar 30, 2009: WSJ - Commercial Property Faces Crisis]
[Feb 23, 2009: Fed May Need to Recast TALF on Commercial Real Estate]
[Jan 13, 2009: Bailout Nation Continues in Commercial Real Estate Land - "Lemme In on that Money"]
[Jan 13, 2009: Logic Behind Bill Ackman's Purchase of General Growth Properties]
[Jan 6, 2009: As Vacant Office Space Grows, So Does Lenders Crisis]
[Dec 22, 2008: Wall Street Journal - Property Developers Ask for Government Bailouts]
[Nov 20, 2008: Commercial Real Estate Finally Hitting Home in Financial Media]
[Nov 11, 2008: General Growth Properties Looks to Join Its Tenants]
[Mar 4, 2008: WSJ - Building Slowdown Goes Commercial]

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