The Mall Will Survive, by New York University Schack Institute
The death of the mall has been widely exaggerated, said a group of senior REIT executives gathering at the New York University Schack Institute’s annual REIT symposium last week. According to a Commercial Observer article titled “Death of Malls Exaggerated: REIT Leaders,” by Guelda Voien, shopping malls are performing well despite many news reports to the contrary.
The article quotes Joseph Coradino, CEO of PREIT LLC, a Philadelphia-based, retail-focused REIT: “Reports on the demise of malls are greatly exaggerated.” Those sentiments were echoed by Matthew Lustig, head of real estate at Lazard Ltd., who said that mall stores larger than 10,000 square feet remain well-leased even as smaller stores experience high vacancy rates.
“In recent years, news reports said shopping centers as an asset class nationally were seriously on the wane,” the article explains. “Losses on liquidated retail CMBS loans have historically been the highest of those for any real estate asset class, according to data from Trepp.” And “even mega REITs, such as Simon Property Group and General Growth Properties Inc., were letting their less desirable malls fall into special servicing last year.”
“The retail sector also has managed to clean up well compared to other assets,” the article notes. But residual concerns from the 2008-2009 market correction remain. Executives speaking at the symposium said that their main concern today is pressure from the investment community to simplify the entities REITS use to do business. Often, these are complex joint ventures and partnerships “with idiosyncratic subordinate and senior positions.” Although the investment community would prefer retail REITs to be totally vertically integrated, they said, the state of the equity markets means that joint ventures often remain the better choice.
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