Pandemic May Deliver Final Blow to Struggling Malls

The impacts of COVID-19 stay-at-home orders and business restrictions may seal the fate of regional malls that were already struggling before the pandemic, a report by  DBRS Morningstar concluded.

The credit rating agency’s CMBS Weekly Chronicle notes that CBL Properties recently announced in its second-quarter financials that it is preparing to turn over to lenders three properties with secure commercial mortgage-backed securities loans: Burnsville Center in Burnsville, Minn.; Eastgate Mall in Cincinnati, Ohio; and Hickory Point Mall in Forsyth, Ill. 

Those developments are not surprising given historical performance trends for those malls, the report concluded.

“The effects of the pandemic have exacerbated the existing stresses for underperforming regional mall properties, further diminishing the prospects for a turnaround for weaker performers in CMBS,” the report said. “As such, the likelihood of default and losses to the respective trusts are generally higher, particularly for less well-capitalized owner/operators such as CBL, The Pyramid Companies (Pyramid), and Washington Prime Group (WPG).”

According to a DBRS platform, approximately 70 loans and loan pieces backed by approximately 50 regional malls have transferred to special servicing since the pandemic began.

“While some of those transfers appear to be performing loans in need of temporary relief, many are loans that showed significant performance declines before the onset of the pandemic,” the DBRS Morningstar report said.

The report highlighted a number of malls at risk of “respective borrowers turning over keys.”

The loan on Simon Property Group-owned Montgomery Mall in North Wales, Penn. transferred to special servicing in July, according to the report. The special servicer cited imminent default due to COVID-19 effects as the reason for the loan’s transfer.

Occupancy at the CBL Properties-operated Southpark Mall in Colonial Heights, Va. dropped to 64.1% in 2018 after the Sears store there closed. The loan on the property was transferred to special servicing in March and an application for pandemic-related relief was ultimately withdrawn, according to the report.

The loan on the Washington Prime Group-Operated Oak Court Mall in Memphis, Tenn. is coming due in April 2021. “Given the weaker financial position of the loan sponsor, WPG, and the performance declines from issuance, we believe it will be significant[ly] difficult to obtain a replacement loan,” the report said. The loan transferred to special servicing in May and was more than 90 days delinquent as of July. The leases for 34 tenants expire in either 2020 or 2021.