The consumer credit bubble encouraged a massive overbuild in retail and commercial realty over the past decade. This was especially the case in North America, which already boasts the greatest retail square footage per capita in the world, with countless new projects still building. A perfect storm: record supply is now lining up with a general population paralyzed by record debt, aging boomers that are naturally consuming less with age, and a growing preference for on line commerce. The imbalance has been evident in the frequency of 70-80% off sales that have become increasingly common through malls in recent years. Still thanks to years of QE and low rates, publicly traded chains have been able to issue debt to keep afloat, as well as buyback their shares to boost reported profits, notwithstanding steadily shrinking sales. But that was always a short-term strategy. With the consumer still in secular retreat, the moment of math is dawning. No company can burn cash indefinitely. Waves of stores have been shuttering month after month, driving commercial vacancies and finally, loan defaults.
This underlines the capital risk for the investors-individuals and pensions–who turned to REITS and other commercial mortgage-backed securities the past few years–desperate for yield. It is also attracting short-sellers now smelling the blood of another ‘big short’.
Wall Street speculators are zeroing in on the next U.S. credit crisis: the mall. It’s no secret many mall complexes have been struggling for years as Americans do more of their shopping online. But now, they’re catching the eye of hedge-fund types who think some may soon buckle under their debts, much the way many homeowners did nearly a decade ago.
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