A Short Bet Against Malls Fuels 48% Gain for One Long-Time Bear

MP Securitized Credit Partners posted a net return of 47.9 percent in March in its $162-million flagship vehicle.

(Bloomberg)—A hedge fund’s long-held bearish bet on the demise of America’s malls sparked its biggest gains ever last month as the Covid-19 pandemic shut down much of the U.S. economy, threatening commercial landlords.

MP Securitized Credit Partners returned a net 47.9% in March in its $162 million flagship vehicle at a time when many other firms that bet on structured credit have nursed big losses. Its wagers against the derivatives index known as CMBX 6, which is heavily exposed to mall debt, helped to offset declines on the fund’s holdings of commercial mortgage-backed securities, according to an investor letter seen by Bloomberg.

Marc Rosenthal, the firm’s chief investment officer, declined to comment beyond the letter.

Rosenthal and Noelle Savarese co-founded MP in 2008 as a unit of FrontPoint Partners, the hedge fund where Steve Eisman made bearish bets on subprime mortgage bonds featured in Michael Lewis’s “The Big Short.” At the time, the MP founders focused on distressed mortgage-backed securities.

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    Shopping center owner Kimco is trying to help its smaller tenants pay rent, stay in business

    Kimco Realty has started piloting a tenant assistance program to help its tenants find and apply for federal and state loans to aid their businesses during the coronavirus pandemic.

    A major shopping center owner in the U.S. has taken matters into its own hands to try to help small business owners get access to funds from the federal government and from states that can help them pay rent.

    Kimco Realty, which owns and operates roughly 400 strip centers typically anchored by grocery stores across the country, has started piloting a tenant assistance program, or TAP. Its goal is to help its tenants find and apply for federal and state loans. Those loans are meant to aid smaller businesses in surviving the disruption caused by the coronavirus pandemic.

    Currently, the TAP pilot is in California and Florida. Kimco said it plans to roll out the program to other states over the next few days.

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      Mall owners worried over mortgage payments as retailers skip rent

      Mall of America- and American Dream-owner Triple Five Group has said it is concerned about some of its tenants not paying rent, which is going to hinder its ability to make mortgage payments.

      Retailers are worried about paying rent because of the damage from the coronavirus pandemic. And that has mall owners increasingly worried about meeting their own obligations.

      Mall of America- and American Dream-owner Triple Five Group has said it is concerned about some of its tenants not paying rent, which is going to hinder its ability to make mortgage payments.

      With thousands of retail and restaurant doors shut, not bringing in sales, many business owners are not in the position to pay rent. The Cheescake Factory, for example, has said publicly it will not be paying rent in April. Lululemon, on the other hand, said it paid April rent.

      Some retailers are asking to cut rents to a smaller percentage, or delay payment to a later date.

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        Regional Mall Owners Face One of Their Toughest Weeks on Record. How Will They Cope?

        Restaurant and store closings might mean some very tough decisions for regional mall landlords.

        This week was supposed to mark the opening of one of the biggest (and longest-planned) retail projects in U.S history—the American Dream Mall in the New Jersey. Parts of the property, including an indoor ski slope, have been opened for a few months. But on March 19, the American Dream’s developer, the Triple Five Group, intended to open the project’s retail section, water park and restaurants. With the new health guidelines coming into effect in New York and New Jersey, however, American Dream will remain closed until further notice.

        This is a story that is playing out across the regional mall sector, which was already in a severely weakened state before coronavirus arrived in the United States. In many states and municipalities, including New York, New Jersey, California, Connecticut, Illinois, Massachusetts, Ohio and Washington, governments are requiring that businesses including restaurants, bars and movie theaters—the staple regional mall tenants—close their doors and only provide pick-up and delivery services if possible.

        Meanwhile, a growing number of retailers, Apple, Urban Outfitters and Lululemon among them, have announced they are opting to close stores for the next few weeks out of concern for the safety of their customers and employees. Others, like Kate Spade and the Gap, have scaled back their operating hours. And there is expectation in the market that more retailers will follow their example. But as closings announcements accumulate, the publicly-traded chains’ stocks are getting hammered.

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          If a Bank Branch Has to Close, What Are the Most Likely Reuse Scenarios?

          As banks downsize their bricks-and-mortar footprint, their vacated spaces can be turned to other uses.

          Banks continue to shutdown branches across the country, but investors see creative reuse opportunities for these locations.

          The typical closed branch encompasses around 8,000 to 14,000 sq. ft. of space, with some branches reaching up to 25,000 sq. ft. or 35,000 sq. ft., says Walter Bialas, vice president of research with real estate services firm JLL. This is where creative reuse of space comes into play.

          “Take a 25,000 square foot outparcel, for example,” says Bialas. “With larger retailers under pressure and limited growth in that sector, you have to match a user with the space. Even many restaurants are not this large, so it becomes a challenge to lease or sell the space and maybe develop a plan to divide the space for multiple users, which is why office type users often fit the best.”

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            Searching for Yield: Multi-Tenant Retail Offers Net Lease Investors Attractive Opportunities

            Multiple tenants can mitigate risk and allow more frequent rent increases for investors.

            In the past few years, we’ve seen an uptick in private investors that were focused solely on single-tenant retail branch out and expand into multi-tenant product at a more rapid pace as they chase yields. It’s seemingly a natural progression, but prior to about 2015, it was perhaps a bit less common for the private investor segment.

            As it relates to retail assets specifically, familiarity is why most investors can make the transition from single-tenant to multi-tenant with confidence—the general rules apply to both product types. Of course, there are nuances that will play a role, but if one understands retail and the economic drivers of a location, the investor has a solid foundation to build from and they’ll be able to expand their focus successfully.

            By acquiring multi-tenant retail assets, investors can enjoy better yields and diversification wrapped up into one investment. Not only can they mitigate the risk if one tenant happens to vacate or go out of business, but lease terms are often shorter in multi-tenant properties, which may offer an opportunity to push rents higher or replace them altogether.

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              Retailers Experiment with Mini Distribution Centers in Their Stores

              The trend can help landlords charge higher percentage rents and avoid vacancies.

              An increasing number of retailers are experimenting with mini distribution centers in their bricks-and-mortar locations to leverage existing physical footprints and dodge record high prices in the industrial sector.

              “If [retailers] are already paying rent for a space, and they don’t need 100 percent of it, could they take 25 to 30 percent, and put stock in there? Versus trying to go and buy [or rent a warehouse at an additional cost], then they’re paying a trucker to truck that product to that warehouse and then have the trucker send it to either the store or the consumer,” says Anjee Solanki, national director of retail services at Colliers International, a commercial real estate firm. “Why not store it in the space that they’re already renting?”

              Along with retailers getting the opportunity to save on operating costs, retail landlords can also benefit from a mini distribution center on their properties. First, the concept helps landlords struggling with high vacancy for large box formats, as there are fewer potential retail replacements for the space than there were a few years ago. Second, having a mini distribution center in the same location as the physical store means online sales would go through that location. Due to this, landlords can then request the retailer to include those online sales in their reporting, upping the amount of percentage rent their tenants pay, according to Solanki.

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                Domestic Private Investors Become the Fastest-Growing Buyer Pool for Multi-Tenant Retail Centers

                Over the last five years, private property buyers have consistently taken market share away from REITs in the retail sector.

                Private investors have become the fastest growing buyer pool for retail centers due to low interest rates and an increase in 1031 and 1033 exchange activity, according to research from brokerage firm Stan Johnson Company and Real Capital Analytics (RCA).

                Private domestic investors represented approximately 72 percent of the buyer pool for multi-tenant retail in 2018, based on sales volume, according to Stan Johnson and RCA. That’s a significant increase from around 42 percent in 2014.

                The recent uptick in private capital in multi-tenant retail is due to three reasons, according to Duff.
                First, the new supply pipeline in the retail sector has been low in recent years. This has helped shore up occupancy levels and rents, in spite of high store closing numbers. In addition, private buyers do not have to answer to shareholders, giving them greater flexibility than publicly-traded REITs to pursue these types of investment opportunities, Duff notes. (The share of publicly-traded REITs investing in multi-tenant retail has shrunk to 5 percent of the overall sales volume in 2018 from 33 percent five years ago, according to Stan Johnson and RCA research.)

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                  Where Are Cap Rates Going in the Four Core Property Sectors?

                  Experts predict little change in either direction in the first half of the year.

                  With late 2018 jitters gone and investor optimism returning, the commercial real estate market should experience mostly steady cap rates through the first half of 2019, although there are particular market segments and geographies that could experience some bumps.

                  “On the interest rate side, I think everybody has dismissed, at least for the time being, the inflation threat so that kind of stress on pushing cap rates higher isn’t there right now,” says Manus Clancy, senior managing director of applied data, research and pricing with Trepp. “We went through a tough period in December when people were jittery. Now everybody has taken a deep breath; they don’t feel like the wheels are falling off either the U.S. or the global economy.”

                  Still some changes, although potentially muted, could be in store. Recent trends suggest there is little room left for cap rate compression, according to Matthew Schreck, quantitative strategist with online real estate marketplace Ten-X. “We expect increases to both interest rates and spreads to drive some loosening in cap rates in 2019 across all property types,” he says.

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                    Mall Landlords Embrace Once-Spurned Popups to Revive Dead Zones

                    Macerich Co. is offering 180-day leases to sign pop-up tenants.

                    (Bloomberg)—It wasn’t that long ago that retailers looking for space at shopping centers would get paperwork only for a multiyear lease.

                    These days mall landlord Macerich Co. is offering 180 days.

                    Last month, Macerich launched BrandBox, a leasing program that allows online sellers to dip their toes into the bricks-and-mortar universe with a temporary pop-up store. The first one, featuring six retailers, is up and running at northern Virginia’s Tysons Corner Center, with plans to expand to at least five more states. The leases are six to 12 months, and the store walls are flexible, meaning Macerich can switch up the layout to accommodate different numbers of shops.

                    “Instead of selling real estate, we’re selling a solution,” said Kevin McKenzie, Macerich’s chief digital officer. “That’s an entirely new process, culturally, for our company.”

                    Macerich, which owns more than 50 shopping centers, is trying to reclaim some of the industry’s mojo. Big-box stores such as Sears and Toys “R” Us, once anchors that drew crowds ready to spend, have filed for bankruptcy. Malls, over the years, have struggled to attract foot traffic. Signing retailers to long leases and hoping none of them takes a trip to bankruptcy court is starting to look like an outdated formula. Kids these days, at least the ones with the money to shop, aren’t into brand loyalty. They’re into Instagram.

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