Malls Get Some Better News With Recent CMBS Remittances

Retail has had its challenges and conventional wisdom for some time has said that retail in general faces some issues and malls specifically. But things may not be as obvious and clear as sometimes thought.

A new report from Trepp’s Manus Clancy said, “a glimmer of hope has emerged recently with some positive indicators appearing within [Trepp’s] servicer watchlist and special servicer comments,” even as “headlines and results for commercial mortgage-backed securities (CMBS) mall loans have been consistently negative” for years.

Even back in March of this year, some mall foot traffic reports from Placer.ai suggested a more nuanced picture for the sector. By July, malls were seeing longer visitor stays, even if consumers seemed hesitant to spend money. But then, more nuance, with regional mall values dropping by more than 70% by the summer, although much of that was for older, low-end malls.

Clancy went through a number of examples.

One was the $87.4 million Cottonwood Mall loan, 9.74% of the COMM 2014-CR17 CMBS package. It’s a 565,000 square foot mall in Albuquerque. The debt service management ratio (DSMR) for the 12 months ending 2023 was 1.17 with a 67% occupancy. Average sales were close to $400 per square foot. Typically, the figure for this sort of mall would more usually fall between $300 and $350.

Trepp has said that the receiver said that the mall was having success at lease renewals, getting temporary tenants to convert to permanent. In the central section, occupancy is up to 90.97%, growing overall occupancy to 84.26%. The receiver also said that it is addressing leases that will expire in the next 12 months.

The 1 million square foot Fort Worth, Indiana Glenbrook Square Mall, at $145.2 million, is 8.78% of CGCMT 2016-GC36 and 7.00% of GSMS 2015-GS1. The DSCR in 2022 was 1.03.

And yet, the receiver has been working to keep existing and attract new tenants, all at market rents with low tenant improvement allowances, if any.

A mall in Manchester, Connecticut — the 535,000-square foot Shoppes at Buckland Hills with a $103.3 million loan that is 100% of MSC 2012-C4 — had a disastrous DSCR of 0.72 in the first half of 2022. According to Trepp, “Lender is considering all methods for disposition as property performance and occupancy (85.3% as of 5/31/23) continue to improve through the conversion of temporary tenants to permanent leases, as well as new lease signings.”

The 500,000-square foot Dartmouth Mall in Dartmouth, Massachusetts had a $52.2 million loan that was 16% of MSBAM 2013-C9. As the loan wasn’t paid in full on the maturity date of April 1, 2023, it was transferred to special servicing. However, the loan is in the process of review for refinancing.

In Palm Desert, California, the Westfield Palm Desert Mall — a $125 million loan on the 570,000 square feet that is 8.28% of MSBAM 2015-C21 and 8.01% of WFCM 2015-C27 — that had a lot of negative equity, occupancy is 83% and there’s agreement on a modification and assumption.

None of this is necessarily reflective of the state of the property type overall, but it shows that after extensive “negative trends … recent developments offer a glimmer of hope as positive indicators emerge.”