Regional Mall Values Are Dropping More Than 70%

When the conversation turns to plunging commercial real estate values, the focus usually is on older urban office buildings that have had their occupancy levels hollowed out by hybrid work patterns.

But the picture for older, low-end indoor malls is just as grim: a lot of these 1980s-era shopping meccas now are worth at least 50% and, in some cases, more than 70% less than they were when mall valuations peaked in 2016, according to a report this week in the Wall Street Journal.

Shopping habits have changed, not just from the rise of online shopping, but from what we expect from our neighborhoods in the emerging post-pandemic economy—and from the malls themselves, the most successful of which are being converted into experiential retail villages with residents as well as walkable restaurants, stores and shops.

More than $14B in CMBS loans backed by malls are coming due in the next 12 months. About a fifth of the malls financed through CMBS are underwater—meaning they’re worth less than the loans they back—Kevin Fagan, Moody’s head of CRE economic analysis, told WSJ—which called it a “death spiral” for local malls in its headline.

The report cited as an example Simon Property Group’s Crystal Mall in Waterford, CT. Simon stopped making payments on $81M in outstanding debt on the mall and last year handed the keys back to the lender.

Anchor tenant Sears announced plans to close in 2018; between 2018 and 2022 overall revenue declined 39% while expenses only fell 10%, Trepp reported.

The loan on Crystal Mall, part of the CMBX 6 index, is expected to liquidate at a $70M loss—about 87% of the outstanding balance—according to an estimate from Moody’s.

Indiana’s Muncie Mall, collateral for a $31M CMBS loan, was appraised at $6M in March, Trepp reported. The 52-year-old mall was appraised at $73M nine years ago.

New Jersey’s 1.1M SF Woodbridge Mall, a super-regional at the foot of the Driscoll Bridge, was appraised at $86M earlier this year, a 76% drop from a 2014 appraisal. Lenders have foreclosed on two CMBS loans on the Woodbridge Mall encompassing a total of nearly $250M.

“We’ve seen dozens and dozens of malls liquidated at losses or had their values cut,” Manus Clancy, a senior managing director at Trepp, told WSJ.

Widespread closures, beginning in 2018, of department stores that for decades have been mall anchors—including Macy’s, JCPenney and Sears—hastened the death spiral for many local malls. The anchor chains closed 875 department stores between 2018 and 2020, according to Green Street data, compared to 175 in 2016 and 2017.