April 4, 2018
CMBS issued in 2012 have attracted significant attention given their high exposure to regional malls, totaling $4.05 billion. The performance of these loans is likely to be stable in the near-term, although several face heightened refinance risk at maturity, reports Morningstar Credit Ratings, LLC.
The company’s Mall Monitor, “What’s in Store for 2012 Mall Loans,” revealed stronger malls are adapting to changes in demographics and shopping habits, even as major retailers such as Sears, Macy’s, and JCPenney announced hundreds of store closures over the past several years.
Yet, at the same time, second-tier properties not only have difficulty filling empty spaces, but often vacancies can trigger a domino effect with other anchor and in-line tenants vacating, pushing the properties’ performance lower. Consequently, owners may see little value in investing additional cash.
Morningstar Credit Ratings’ Steve Jellinek says, “It may seem surprising that many malls are not only surviving, but thriving. Our view on regional malls has become nuanced over time. Stronger malls are changing their mix of retailers, offering additional amenities, focusing on dining and experiential offerings, and aggressively re-tenanting vacated spaces.”
– Mall-backed CMBS in 2012 were underwritten before mall defaults began mounting in 2013, with higher leverage than their 2013 and 2014 counterparts
– Most 2012 issuances are benefiting from strong locations and a healthy economy, along with improving cash flow
– Morningstar believes most of these loans will likely remain stable in near term
– Some loans may face headwinds as maturity approaches because of changing lender and investor appetites
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