While this happens, retailers' store counts contract, leaving landlords with vacant space in centers and vastly less operating income. Last year, the collapse of electronics retailer Circuit City and home furnishings chain Linens 'N Things left the biggest dent, and there are still concerns that similar closures could continue. There are doubts about the stability of Borders Group, which operates 515 bookselling superstores around the country, and the year already brought the announced closures of 805 Movie Gallery stores and possibly more to come.

"The playing field five years from now is going to look different than it does today," says Neal Gussis, a principal at Chicago-based Corvus Group, which provides financial realty services, including those of a distressed nature.

So far, he says, citing research firm Trepp, retail CMBS loans that are 30-days-plus delinquent total $11 billion, or 5.34% of the total issued. That number is still much lower than hotels (11.72%) and multifamily (9.4%), but Gussis sees retail's share creeping up. And retail already surpasses office, industrial and self-storage.

"It's not a pretty picture," he says, pointing to an environment of lower NOI and higher cap rates. "The fundamentals of the whole sector have fallen off."

The result could mean the disappearance of some mid-sized shopping center owners that nevertheless have big names in the industry that own and build boutique types of projects. Those assets will likely get absorbed by larger investors such as the leading REITs.

Meanwhile, Gussis sees continued trouble in roughed-up markets in Ohio, Michigan, Nevada, Florida and other locales where half-vacant shopping centers are commonplace. "The bottom of the market is pretty problematic," he says. "I don't know where that ends up."

The unemployment rate is a key indicator of retail's health, points out Andy Miller, managing principal at Denver-based Miller Frishman, which is a receiver of retail and other commercial properties across the country. The current figure of around 10% isn't good, and things will get worse if it remains there, he says.

"When the economy starts to spiral down, retail is real sensitive to any contractions," Miller stresses. "With high unemployment, you can count on tough times for retail. Period."

Miller insists that retail's main problem is not that the sector is overleveraged compared to others. He sees store closures as the main culprit. Many chains still experience major sales declines because of the consumers' woes, including unemployment, personal overleveraging and a housing market that is still uncertain at best. "A lot of retailers that open up stores today are having problems with their own financing," he says.

Andy Graiser is at the forefront of retailer distress. His Melville, NY based firm, DJM Realty, where he is co-president and which is owned by the Gordon Brothers Group, helps chains like Movie Gallery, Goody's Family Clothing and other companies with major store closures get out of their leases. "We are certainly expecting to see a lot more distress in the retail sector," he says.

Grasier doesn't see as many store closures in the coming year as in 2009, but some areas are in trouble. "There are issues out there in certain sectors that we've seen, such as the regional supermarkets. We're expecting more closures there," he says. "Casual dining's got a lot of stress. We're expecting more closures there."

But on the upside, apparel improved recently, and many tenants that looked like they could be up for some major door shuttings tightened their balance sheets and learned on the fly how to deal with the recession. Additionally, though they are not making up for all of the store closures in 2009, some national players like Best Buy and the dollar-store chains are taking up space vacated by those such as Circuit City.

In some additional good news, the larger retail REITs are holding their own, for the most part. Simon Property Group, the country's largest mall and outlet-center owner, only saw fourth-quarter occupancy rates fall to 92.1 % from 92.4% at malls year over year, while outlets only experienced a drop to 97.9% from 98.9%. But though tenants aren't leaving the portfolio in high numbers, their performance suffered over the period, with sales per square foot declining, from $470 to $433 at regional malls. Nevertheless, Simon upped its FFO guidance for the coming fiscal year, beating Wall Street's expectations.

But good news for Simon and a handful of other large firms doesn't necessarily mean the industry as a whole is healthy. If the overall economy turns around and retail sales gain traction, there might be some hope. More likely, though, there is pain ahead."The jury's out," Miller says. "I don't think we know right now which way retail is going to go."

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