After years of physical collapse, a pandemic broke out. Urgent measures are now needed.
Designed by Wolf Richter for WOLF STREET.
Simon Real Estate Group and Brookfield Real Estate Partners obtained bankruptcy court approval this week to purchase retail and operating assets of JC Penney, which filed for bankruptcy in May.Simon is the largest real estate investment trust [SPG] In the U.S. Brookfield Property Partners is the entity of Brookfield Asset Management, which is a large Canadian asset management company and a private equity company with many entities. Brookfield Properties became a huge shopping center landlord after acquiring REIT GCP Shopping Center, the second largest shopping center in the United States in 201
However, the types of goods purchased and sold in malls have been largely transferred to online platforms, including online platforms of mall retailers, such as Macy’s, which is one of the top ten e-commerce sites in the United States. No group has been hit hard by physical department stores, which are an important pillar of shopping centers. This started 20 years ago, when department store sales peaked. Since December 2000, after a series of department stores went bankrupt, including the #1 department store chain Sears Holding, sales fell by 45% by February 2020. By September 2020, sales had fallen 48% from that peak:
So now, Simon and Brookfield and other shopping mall real estate investment trusts (REITs) are buying retailers in bankruptcy court to keep the shops open so that they can pay rent and fill the vacant space, creating People flow and attract some shoppers to other stores so that they can continue to pay rent and avoid the shopping mall becoming another zombie shopping mall.
If Simon and Brookfield did not intervene, JC Penney may have been liquidated. This will result in the loss of approximately 60,000 remaining jobs and the closure of approximately 650 remaining stores, while the approximately 90,000 jobs and 800 stores before bankruptcy have been reduced.
There are about 60 JC Penney stores in Simon’s mall, and there are many JC Penney stores in Brookfield’s mall. These are anchor stores. If these stores close, it will be difficult to find new tenants willing to pay for the department store. The anchor shop is a magnet that attracts people.
Without the main store, there will not be enough people flow to keep other stores open, and one store after another will close. This has happened many times before the pandemic, and the pandemic is accelerating this process. Each of these JC Penney stores needs to remain open and attract shoppers to keep the mall alive.
Sparc is a joint venture between Simon and Authentic Brands, and PE company BlackRock became the largest investor last year. Sparc has acquired other failed retailers, including Brooks Brothers, Forever 21 and Lucky Brand. Authentic Brands has a product portfolio of more than 50 brands. In November last year, the company bought some shares of Barneys in New York for bankruptcy purposes.
The idea now is to bring some of these brands into certain stores, including JC Penney, and then people will come, or appear in other ways.
Simon focused on shopping mall A in the best location, and spent several years better than the landlords of other shopping malls when the Pandemic brick market collapsed. Some shopping mall landlords have filed for bankruptcy, including two shopping mall REITs last Sunday: CBL & Associates Properties and Pennsylvania Real Estate Investment Trust. Even for Simon, things have become difficult.
During Monday’s vaccination campaign, SPG’s stock fell 27.9%. But Simon subsequently reported the quarterly results, which was very rough. Revenue in the third quarter fell by 25%, and the occupancy rate fell from 94.7% last year to 91.4% on September 30, the lowest level in years. By Wednesday, SPG gave up nearly half of Monday’s vaccine revenue.
When their bankruptcy business model has been severely tested for twenty years, even bankruptcy or even temporarily ignoring the pandemic, they all went bankrupt. They are eager to keep their stores open or they will close their doors. .
In a sense, in the short term, this is a good thing: keep some jobs, keep the occupancy rate from falling, and prevent shopping malls from becoming zombies.
However, even Simon cannot make Americans give up e-commerce. This is a structural change in the way Americans shop. Shopping mall retailers are the bullseye of e-commerce goals. The damage began many years ago. Since at least 2016, I have been recording the collapse of the entity. This structural change is not a new development, although the landlord of the shopping center has publicly condemned this phenomenon.
Simon has opened some shopping malls, including sending jingle mails to creditors. For example, Simon got rid of the mortgage of a 1 million square foot super regional shopping mall in the Independence Center suburb of Kansas City, Missouri. When the shopping mall was sold in the form of a foreclosure auction in April 2019, it caused a loss of $150 million for commercial mortgage-backed securities investors. Trepp, who tracks CMBS, called it “the biggest loss ever suffered by retail CMBS loans.” This is only part of the collapse of a conventional entity, and one year ahead of the pandemic. Now, the process including email sending has been accelerated.
A few years ago, during the securitization into CMBS, the expansion of the value of collateral led to the relief of extremely low loan-to-value ratios. Then came trouble. read… When the property value fell below the loan amount, Jingle Mail troubled commercial mortgage-backed securities
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