Investors Betting On The End Of Malls

Malls are hurting, that much is true.

As consumers continue to move their purchases elsewhere, many of these behemoths of brick-and-mortar retail have become shells of their former selves.

But for some investors, the vision of hollowed-out anchor stores and cobweb-addled food courts have them seeing green. Specifically, because they’ve placed their bets on malls to fail. Hard.

It all has to do with an index linked to the performance of bonds backed by commercial mortgages on malls, office buildings and other commercial properties, said The Wall Street Journal. Called CMBX 6, this index has dropped 6.3 percent since the beginning of 2017.

For investors shorting the index, this is good news.

The move to bet against malls leveraging CMBX was first brought to investor attention in February of this year, after New York hedge fund Alder Hill Management Investors released a report detailing how it expects more defaults to occur in malls throughout the year.

In essence, high-risk loans have been backed by malls Alder Hill Management believes are likely to die out over the next several years. Many are projected to default prior to maturity.

“We expect 2017 to be a tipping point for the pace of retail store closures and rent reductions,” said the hedge fund in its report. “We believe this opportunity, created by the ongoing retail upheaval and the power of structured leverage, to be among the most asymmetric our team has ever seen.”

According to data from Credit Suisse cited by WSJ, brick-and-mortar retailers have announced some 2,880 location closures through the beginning of this April — including shuttering by a number of national chains. The closing stats for 2017 are reportedly nearly double those announced across the same period one year ago.

Based on the ongoing rate, projections through the end of 2017 are grim. Retailers are expected to close over 8,600 locations by the time 2018 rolls around, dwarfing even the numbers seen following the 2008 financial crisis and recession.

This comes along with a number of additional retail bankruptcies announced in the first quarter of 2017.


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