JC Penney Store Closings

Bloomberg had an article regarding JC Penney closures and their impact on CMBS out last week. It noted that JC Penney is the biggest tenant in the CMBS market (is this accurate?) and the move highlights the "widening chasm" between successful malls and dying malls.

JCP Closing 33 Stores

According to the WSJ, JCP is closing 33 Stores. I'll update this entry with CMBS exposures if/when I get a chance.

State	City	Shopping Center
AL	Selma	Selma Mall
CA	Rancho Cucamonga	Arrow Plaza
CO	Colorado Springs	Chapel Hills Mall
CT	Meriden	Meriden Square
FL	Leesburg	Lake Square Mall
FL	Port Richey	Gulf View Square
IA	Muscatine	Muscatine Mall
IL	Bloomingdale	Stratford Square Mall
IL	Forsyth	Hickory Point Mall
IN	Marion	Five Points Mall
IN	Warsaw	Marketplace Shopping Center
MD	Salisbury	The Centre at Salisbury
MI	Marquette	Westwood Plaza
MN	Worthington	Northland Mall
MS	Gautier	Singing River Mall
MS	Natchez	Natchez Mall
MT	Butte	Butte Plaza Shopping Center
MT	Cut Bank	(N/A)
NC	Kinston	Vernon Park Mall
NJ	Burlington	Burlington Center
NJ	Phillipsburg	Phillipsburg Mall
OH	Wooster	Wayne Towne Plaza
PA	Exton	Exton Square Mall
PA	Hazleton	Laurel Mall
PA	Washington	Washington Mall
TN	Chattanooga	Northgate Mall
VA	Bristol	Bristol Mall
VA	Norfolk	Military Circle Mall
WI	Fond Du Lac	Forest Mall
WI	Janesville	Janesville Mall
WI	Rhinelander	Lincoln Plaza Center
WI	Rice Lake	Cedar Mall
WI	Wausau	Wausau Mall

*UPDATE*
Deal Exposures:

Shopping Center	Deal	Loan PCT Deal
Military Circle Mall	GMACC 2004-C2	9.80%
The Centre at Salisbury	JPMCC 2006-LDP7	3.70%
Hickory Point Mall	BSCMS 2006-PW11	1.90%
Laurel Mall	BSCMS 2007-PW17	1.70%
Wausau Mall	WFRBS 2011-C4	1.30%
Marketplace Shopping Center	CGCMT 2004-C2	0.90%
Bristol Mall	BACM 2006-5	0.90%
Wayne Towne Plaza	MSC 2007-IQ15	0.60%
Natchez Mall	CGCMT 2006-C4	0.50%
Lincoln Plaza Center	GSMS 2006-GG6	0.10%

Source: Credit Suisse.

Blockbuster death knell continues as remaining physical stores close

They have 300 stores remaining in the U.S. and they're closing all of these down. The best takeaway from the article is the quote from the CEO:

"consumer demand is clearly moving to digital distribution of video entertainment,"

 Yeah, it isn't "moving" it has "moved". What he fails to realize is that the movement is also away from cable and satellite providers such as DISH (the parent company of Blockbuster) as well. Roku and Apple TV products are letting people completely unhook.

Our household unplugged our DiSH a little over a year ago, and now instead of seeing what is on or recorded, we get to flip through a broad menu of options to choose from - want to watch the entire series of The Walking Dead in a single day? No problem, you can watch the first three seasons on the Amazon Prime channel for FREE (this channel is free if you already have Amazon Prime, which we do for other reasons) or on NetFlix which costs $7.99/mo, the current season costs around $15 or you can wait til post-season and its free too. Want to watch virtually any sitcom - Hulu, free. We spend around $40 per month now on streaming TV, mostly for premium content (i.e. HuluPLUS - $7.99/mo, more episodes are available with Plus; Netflix) and movies on demand (even ones in the theatre right now). Movies on demand that are out on Redbox (which has a channel on Roku) are a $1-2 more than at the physical location, but you spend multiples of that in time and gas, so net savings - plus many of those movies are also on other channels for free.

Sorry for the mission creep. Most of the Blockbuster stores that are closing are small corner retail stores and outparcel units in strip centers. Some common uses that have popped up since the bankruptcy has been pawn shops (i.e. LaFamilia in FL), cell phone retailers (for half, or less, the footprint), Game Stops, medical (i.e. freestanding emergency rooms, minute clinics, etc.), and restaurants. There is a blogger in Atlanta who has documented many of the stores' transitions there that is worth a quick peek.

138 Spring Street (WBCMT 2007-C32) sells at a 3% cap rate?

Rivercrest Realty Investors apparently sold the property for $48.5mm, over twice the outstanding CMBS note of $23.5mm (0.78% of WBCMT 2007-C32). The property has retail at street level and offices upstairs. The DSCR for 1Q 2013 was 1.07 with 85% occupancy. It is not clear if the loan is to be assumed or defeased, but it is in defeasance for the next 45 months.

I suppose this shouldn't be too much of a surprise. SoHo's average retail rents were up substantially during the first quarter with average rents of $850 just 1 block north of this location on Prince Street. And, $850 is old news. In February Prada paid $1,000 psf for the 100 Prince Street 10,000sf store, and at 120 Prince Street, asking rents are purportedly going up to $1,200 psf by end of the year.

Outlet Malls Galore!

My wife briefly entered the commercial real estate section of the local business news when she discovered that Tanger Outlets was building an outlet mall just a few short miles from our house! The only good news that I could garner was that I might be able to sit at home while she shops instead of grudgingly going with her and sitting on couches that are for sale in the stores.

Before the day was over, we discovered that Premium Outlets is coming too! Joy! Pure Joy! There is a substantial probability that there will be weekends that I may have the entire house to myself.

From CoStar.

I also secretly hope this leads to a large butt shaped water tower that is meant to look like a piece of fruit, similar to Gaffney SC - currently the closest location for Outlet-shopping fulfillment.

$1,800/sf lease rate may be the pain threshhold Times Square retail

TrafficCourt, and The Real Deal, report:

...Express had walked away from a 45,000-sq.-ft. deal at 4 Times Square, on 42nd Street, though the company didn’t disclose its reasons. The store would cost Express $45 million a year, and created downward pressure on its performance expectations for 2012, according to The Real Deal. Retail space in the Times Square area reportedly goes for about $1,800 per sq. ft.

Best Bye Bye

More talk about Best Buy today:

1. RetailTraffic Blog's Elaine Misonzhnik examines how unlikely a buy out is. You should click through - we're big fans of her over here.
2. The WSJ article is patently absurd and suggests that it will be problematic hiring a CEO because the majority stockholder and founder remains as Chairman and keeps a tightened grip on the company. That is exactly what we need to change with CEOs (and Presidents) in this country, ones that do what the majority owners want them to do and they need to be able to share power with other executives. If I wasn't stealing access to the WSJ, I'd probably cancel my subscription over such hogwash. However, given my grey market access, I shall not complain too loudly and will likely continue reading it if is so that I may act defiantly stunned at their frequent misconception of the issues!

Sears for sale?

There are so many options with Sears headlines: The Good Life at a Great Price. Guaranteed. Come See the Softer Side of Sears, Blue Light Special, etc.

Anyway, we noticed over in Traffic Court that there are purportedly "rumors" going around that it is for sale...

Whoever buys Sears would likely do so for the value of its real estate rather than for the value of its retail brand, given that the company owns properties in many of the nation’s oldest and best malls.

Blue Light Special - Sears Closing List

I like Eddie Lampert. I want him to win. How can you not like the story of how he got to where is, well, at least up until about 2003-ish when he bought K-Mart, followed a year later by the Sears acquisition. In all fairness, he quickly shuttered hundreds of stores and turned the new company into a cash cow in the short-term, but ever since the stores have allegedly (I haven't been in a K-Mart since at least 1995, and not in a Sears since at least pre-9/11 - if ever) suffered from a lack of adequate CapEx and ever-changing leadership. Never mind that the retail environment is just tougher today than it was a few years ago.

Then he missed an opportunity to capitalize on the value of the real estate at the peak of the market. Even in back in '04 when the Sears merger was underway, splitting the company into an OpCo/PropCo strategy where you would split the retailer into a Real Estate company (and leverage it up with CMBS debt) and an Operating Company made a lot of sense. The debt likely would have been fine today as well, given that they would have signed some long-term leases (of course, the OpCo may be stuck with lease payments if it shuttered 120 stores...). Within a few months, KKR/Bain/Vornado were divvying up ToysRUs in precisely the same manner.

Well, I'm still rooting for the guy. He announced over the break that they're closing 100-ish stores and they released a list of 80 closures in the last couple of days. They're list is in a PDF and doesn't copy out cleanly, so I pasted a complete list at the bottom of this for anyone who wants it.

CMBS Exposure - Please note that this is not an attempt to be a thorough or complete list, just a quick snapshot. There is a HIGH probability that there are some missing or incomplete data in the list below. The analysis simply consisted of pulling every property with a tenant with a name like "%Sear%" or "%K%Mart%" and matching against ZIP codes on their closure list (Zip codes change, Annex A's misspell stuff, etc.):

Deal	Loan Name	Loan Status	PCT of Deal
MSC 2007-IQ14	Ershig Mall Portfolio	Perform(w)	0.83%
GMACC 2004-C2	Shoppes at St. Lucie West	Grace(w)	2.06%
MSC 2005-IQ10	69th Street Philadelphia (I)	Grace(w)	4.43%
JPMCC 2006-CB15	Lightstone Portfolio	Del 90+ ss	3.31%
MSC 2005-T17	Coventry Mall	Del 30 ss	9.26%
CSFB 2002-CKN2	Crystal River Mall	REO	4.16%
MCFI 1996-MC1	Kmart/Rocky Mount	REO	100.00%
BACM 2005-6	Island Walk Shopping Center	Perform(w)	0.50%
WFDB 2011-BXR	BXR Loan	Perform	100.00%
CSFB 2001-CKN5	Manhattan Plaza	In Foreclosure	2.45%

In the table above, the formatting kept cutting off columns - if you'd like the complete mapping of columns shoot me an email at credarkspace@gmail.com

Full Closure List (Source)


Also, CRE Console put together a little map using one of my favorite free online mapping tools here. Over at Retail Traffic, Elaine Misonzhnik postulates that the real estate may be in high demand at many of these locations.

Borders closing a couple hundred stores

Bodamer reports.

Our Exposure List.

Top retail bankruptcies this century (link from Bodamer's post).

UPDATE - here's a list. At least 36 are in CMBS deals - I'll post a list after I finish my phat lunch...

HUNDREDS of new leases coming to America!

That's a little tongue-in-cheek, but nonetheless, one of our favorite blogs Retail Traffic, has some interesting links on retailers that are actually adding stores in 2011:

Family Dollar has revealed it plans to double its annual store growth to 300 locations. Japanese apparel retailer Uniqlo reportedly wants to open 200 U.S.

Uniqlo is the retailer that took over the ground level retail at 666 Fifth Avenue for $20mm this past Spring.

2009 was a tough year for retail...

This summary is not available. Please click here to view the post.

Simon and GGP Marriage - With wedding photos and charts

What would this look like?



Something like the above, where the little rusty-red dots are GGP and the Blue dots are SPG. Note that I think the "CUBA" property is really in Italy and the GEO-Coder misinterpreted it - you can click here for an interactive map that includes all their properties, not just domestic.

GGP has substantially lower coupons on their mortgage debt, averaging 63 bps lower @ 5.29%, but the divide is even larger on loans maturing before the end of 2012, favoring GGP by an average of 125 bps. So, given everything else remains the same, Simon will be likely to assume GGP's mortgage loans. Add in factors such as the lack of available financing, higher coupons, stricter underwriting, etc. SPG's only roadblock to assuming the mortgage debt is getting rating-agency sign-off where its required.

GGP's mortgages on their malls actually perform slightly better than Simon's from a cash flow over debt service perspective. The majority of GGP's malls have a NCF DSCR greater than 2x. Simon's average DSCR is 1.83x.

GGP properties also have slightly lower leverage, with average original LTVs at 62.72% versus SPG's average orig. LTV of 66.53%.

Obviously GGP has a lot more overall debt (mortgage and corporate) due to the Rouse acquisition, and we all know about their huge refi hurdle - look below. This is the maturity schedule, in billions, for all GGP and SPG CMBS mortgages, extended out to their maximum ARD or Extension date.


The footprint overlap is probably of some concern that might lead Simon to cherry pick assets instead of taking the entire platform down. Some MSAs have multiple properties operated by each REIT.

Take Atlanta-proper, for instance. SPG has Phipps Plaza, Lenox Square, and Northlake, while GGP has Cumberland and Perimeter; if you expand to the Atlanta MSA, you end up with SPG malls Discover Mills, Gwinnett Place, Town Center at Cobb, Mall of Georgia, Mall of Georgia Crossing, North Georgia, and GGP has North Point and Southlake. Not only is there a high number of malls in the Atlanta MSA from both sponsors, but a quick look at the loans and the GGP Atlanta loans are higher leveraged then average (so are the SPG loans), and have lower DSCRs than average.

Tenant overlap is pretty consistent, just looking at the non-anchors, and focused on revenue, Simon has a slightly more diverse tenant base.

Top Retail Tenants by Rental Income	Simon	GGP
The Gap	2.20%	2.90%
Limited	2.00%	2.60%
Abercrombie & Fitch	1.80%	2.30%
Foot Locker	1.40%	2.30%
Zale	1.00%	<1%
Luxottica Group	1.00%	<1%
American Eagle	0.90%	1.50%
Express	0.90%	1.30%
Sterling Jewelry	0.90%	<1%
Genesco	0.80%	1.10%

Not sure who wins the battle of increased tenant concentration - probably the tenants since they have more negotiating power, but could go to the landlords because the tenants have fewer location options.

Will be interesting to see if Simon cherry picks the performing assets and let's the others (especially in high-overlap areas) flounder, or if they go in and take it a substantial percentage of the total to increase their footprint and dominate the space (as if they don't already) blocking out any competitors.

Closures and Layoffs

Sears is closing its store at Eastland Mall in Charlotte NC. The fact that it took so long (just 3 weeks ago, ESL was stating publicly how committed he was to that location) is smear against the company. This mall has disintegrated into an unsafe place responsible for a high level of crime and has no anchors (Sear's was the last), but this disintegration started before the turn of the century and it was in bad shape back then. After losing money for some significant period of time and working with local groups to come up with plans to revive the site, the former owner, Glimcher, bowed out and turned in the keys in 2008.

The comments in the Charlotte Observer story are mildly amusing if you're bored. Commentators call each other racists (the mall is located in predominantly minority part of town) and blame everyone for the Mall's failure (except the owner and manager of the property).
Regardless, it got me looking for other closures, of which I try to keep a close eye on. The list is really growing. David Bodamer has a nice one compiled at the bottom of his article on Sear's closures. However, Mark Herschmeyer has the best weekly update on closures and layoffs at CoStar.com, and I haven't found one that rivals the depth and quality - but let me know if I'm missing a good one.

Hotel and Retail CMBS

Maris Zivarts and Courtney Alexander of UNITEHERE did an excellent write-up about the Columbia Sussex portfolio. Obviously there is a slight conflict given they work for the union of workers who are employed at some of the properties, but it is duly noted and the article is well written.

Hotel CMBS is historically one of the most volatile sectors with the highest losses. It was obviously on its way up at a frothy pace in 2004 & 2005, which can be tracked by the ~$3-4 billion in new cash put into Extended Stay Hotels by Blackstone, to be flipped two years later to Lightstone for more than 2x as much, $8 billion.

Lightstone Group turned in the keys on two malls that it defaulted on this year. Although I think it is undisputed that Retail will feel some pain, I'm beginning to believe that Regional Malls may feel more pain than strip centers given the concentration of highly levered retail tenants.

GGP publicly warns of default

Mall Owner Is Warning of Default

General Growth has $900 million in debt coming due Nov. 28 on two luxury malls on the Las Vegas strip. It has another $58 million in bonds due on Dec. 1. The company is attempting to meet those obligations by selling those two malls as well as another on the Las Vegas Strip. It also is negotiating with its lenders to gain an extension on its deadline to pay those debts.

Since the CMBS financing fell through, this has become more and more likely. GGP has loans in a lot of CMBS deals, most are longer-term loans, but some shorter term loans are due this year. They also have a bridge loan, which was used to pay down the CMBS loan on Fashion Show Mall last year, which comes due any day now.

Most of the assets are strong assets and cover their debt well. Its highly likely that CMBS servicers (and others) will extend the maturities on loans that are performing well. Any properties that do get foreclosed on may see longer recovery periods than usual (just given the lack of credit available), but losses will be minimal, or 0%, on the senior CMBS mortgages.

Simon is next in line. They have a fair amount of debt due over the next 18 months, but keep in mind it only seems like a fair amount due to current market conditions - in reality we're talking about $1 or $2 billion. In fact, if you lump all the REITs together, and look at senior mortgage debt maturing each year, it's less than $20 billion in '09, less than $25 billion in '10, and then hovers around $25 billion per year for the next several years - its not that much in the grand scheme of things, but could be devastating if there is no money to refi with.