Where we live, just north of Toronto, Canada, the consumer credit bust is not yet understood, and retail and commercial space is still being built at a horrifying clip. Projects planned years ago are now breaking soil, even as vacancy and ‘going out of business’ signs are going viral through existing space.
Veteran retail analyst Howard Davidowitz, chairman of Davidowitz & Associates Inc, which has provided consulting and investment banking services for the retail industry since 1981, says that a surplus of stores means bankruptcy is spreading and half the 1,100 U.S. regional malls will close over the next decade. Canadian retail is likely to follow suit.
These trends should issue a warning to securitized debt (CMBS) and REIT investors who have piled into the commercial property sector looking for yield over the past deacde. Ironically their gushing capital enabled the dramatic over-build which is now falling on its own excess. See US mall investors to lose billions as retail gloom deepens:
The CMBS industry is bracing for losses to spike as loan servicers struggle to extract any value from problematic malls, particularly those based in less affluent areas.
In January, for example, investors recouped just 4 percent of a $136 million CMBS loan from 2006 on the Citadel Mall in Colorado Springs, Colorado.
Investor worries about exposure to struggling malls and retailers intensified in August when Macy’s said it would close 100 stores, prompting increased hedging and widening spreads on the junk-rated bonds made up of riskier commercial mortgages.
What to do with all that dead space full of cheap goods made in Asia that no one wants anymore? Well that’s easy. Put these on the roof…
and this inside:
Transforming redundant, dead space into efficient, productive, local, life-sustaining properties with a fraction of the carbon footprint. Smart solutions are everywhere once we start looking for them. But it’s time to start…
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