Mall Owners Walking Away from Properties as Tenants Move Out

Mall Owners Walking Away from Properties as Tenants Move Out

Mall landlords are heading for the exits as more and more retailers move out of struggling properties. The mall owners are leaving creditors to deal with the aftermath of an unstable real estate market as properties plummet in value. Malls are facing stiff competition from online retailers. The Wall Street Journal reports that landlords are choosing to hand over ownership to lenders rather than restructuring debt owed on mall properties. Lenders are forced into letting go of these properties at fire sale prices.

According to a 2016 report by Morning Star Credit Ratings, 314 retail property loans were sold off, which resulted in an 11 percent increase from the previous year.  As mall property values turn upside down and go below their loan values, “some mall owners are more aggressively taking the step to walk away,” said Morningstar Credit Ratings Vice President Edward Dittmer to the Wall Street Journal.

Citadel Mall experiences similar decline

Locally, the area’s largest shopping center, the Citadel Mall, has been subject to a similar trend during the last recession, with 25 percent of its retail space remaining unoccupied, cutting dramatically into the landlord’s proceeds. The Citadel Mall headed into foreclosure in 2013 due to missed monthly mortgage payments on a $75 million loan. The U.S. Bank National Association claimed the owner defaulted on the 10 year loan. In the interim the New York-based Spinoso Real Estate Group was declared in court as a receiver to manage the mall. The interior portions of the Citadel Mall recently sold for $17 million, a fraction of its former value, according to CW Capital, an asset management company based in Maryland. This does not include the anchor stores Belk, Dillard’s, J C. Penney, Sears, and Target, which own their buildings and property footprints.

The economy’s turnaround from the Great Recession has resulted in a renewed interest in the 290,620 square foot interior mall space. In the last six months new retailers have started moving in, including Hibbett Sports and apparel retailers Citi Trends and Rue21.  The sale of this portion of the mall will help revitalize the West Ashley area, and  Mayor John Tecklenburg’s efforts to modernize West Ashley. “Citadel Mall is a very important property at the heart of West Ashley,” said Jacob Lindsey, the city’s planning director in a recent Post & Courier report. “We look forward to working with the future owners of the mall and our West Ashley revitalization partners on next steps for this vital area.”

Source: Wall Street Journal, “Mall Owners Head for Exits As Retail Tenants Move Out,” by Esther Fung, January 25, 2017

Source: Post & Courier, “Citadel Mall under contract to be sold,” by Warren Wise, January 28, 2017

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