Billionaire investor Carl Icahn is betting against mall owners.
Sources told The Wall Street Journal that Icahn can potentially gain $400 million or more if mall owners aren't able to service their debt. In fact, traders said that Icahn likely is now the largest short seller of mall debt.
But not everyone has lost faith in malls, with two of the largest money managers, Putnam Investments and AllianceBernstein Holding LP, holding a more positive outlook for the industry. The competition is “the biggest battle in the mortgage bond market today,” said Dan McNamara, a principal at MP Securitized Credit Partners, a New York hedge fund. There are more than $10 billion of potential profits at stake on the direction of an index called CMBX 6, which tracks the value of 25 commercial-mortgage-backed securities (CMBS), including mall debt.
Icahn has reportedly been buying insurance contracts called credit-default swaps, which give holders protection against CMBS defaults. When investors bet on a rise in mall defaults, they buy the contracts, which causes the index to decline. Icahn then makes money when the index drops.
Although Icahn has lost millions so far, sources say that he isn't giving up on the long-term, since his contracts will pay off if landlords have a hard time paying back their debt by 2022. It's important to note, however, that despite the fact that many malls and shopping centers have seen a decline in tenants in recent years, data shows that only three of around 40 malls and shopping centers linked to the CMBX 6 have been delinquent on their loans since 2012.
Retail malls have also been looking at innovative ways to lease out their space. Mall of America in Minneapolis, America’s largest mall, recently announced plans to open a 2,300-square-foot walk-in clinic in November with medical exam rooms, a radiology room, lab space and a pharmacy dispensary service. And Simon Property Group, the largest mall operator in the United States, will invest $5 million in Allied Esports, which describes itself as “a premier esports entertainment company with a global network of dedicated esports properties and content production facilities.”