Mall Stakeholders Square Off Over Missed Payments

October 28, 2020

As the pandemic presses on, lenders are looking to delinquent mall owners to meet their payment obligations.

This spring, lenders at first showed some willingness to allow rent deferrals or other concessions for mall owners facing cash flow issues. But as store closures have accelerated, the high number of missed payments is testing lenders’ patience and spurring them to crack down on delinquencies, The Wall Street Journal reports.

Many landlords continue to struggle amid the coronavirus’ sweeping impact on in-store retail. Store closures in malls have accelerated since stay-at-home orders were issued in the spring.

Lenders are growing concerned about a quick drop in retail property values as a result. The Wall Street Journal says values could plunge by up to 75% nationwide. As such, lenders are, in some extreme cases, moving ahead on foreclosure sales to try to recoup some of the money owed.

For example, lenders to Dadeland Mall’s Saks Fifth Avenue in Miami are moving to foreclose on the property owner for failing to pay its mortgage since April. According to the Journal, the $846 million mortgage is securitized with collateral from 10 Saks stores and 24 Lord & Taylor stores nationwide. That means the lender could seize these other properties through the foreclosure process.

Mall owners are directing their fight to their tenants. They’re filing lawsuits against retailers who haven’t paid rent. In some cases, these tenants are then asking the courts to allow them to break their leases.

"Every step of the way, everyone is fighting each other to see who will take the loss," Jim Costello, senior vice president of research firm Real Capital Analytics, told The Wall Street Journal.

Meanwhile, some malls are looking to reinvent themselves to find profits in other ways. For example, some owners are exploring converting malls to residential buildings or warehouses. But that has lenders worried too: It could prompt redeveloped properties to fall by greater levels than before the effects of the coronavirus were seen, according to research from Barclays PLC.

Lenders Cracking Down on Mall Owners Behind on the Mortgage,” The Wall Street Journal (Oct. 27, 2020) [Log-in required.]