CONTENTS

PRINT THIS STORY:

CHANGE TEXT SIZE:

BETTER MOUSETRAPS

Only a tiny handful of malls have closed in the past decade, and among those that have, it’s because of the “better mousetrap effect,” according to Merrill Lynch’s team of mall REIT analysts. The description, derived from Ralph Waldo Emerson’s quote “If you build a better mousetrap … the world will beat a path to your door,” applies to about 65 percent of the 115 U.S. malls that have shut down in the past 10 years, analyst Steve Sakwa says in a report. “In almost two out of three cases, a significantly better mall in size, layout, retail tenants, etc., began to steal market share from weaker, less dominant malls,” he wrote. The second reason for mall closures was a shift in demographics. “In about 27 percent of the cases, the consumer was pushed away from one mall location and toward another,” Sakwa wrote. The third reason malls closed was, he said, an excessive amount of mall space in a market relative to the level of consumer demand.

HARD POLICY

Lenders want to see more proof of insurance these days before they sign off on shopping center deals, speakers said at ICSC’s Southeast Conference, in Atlanta, in September. Currently, broker-supplied documents such as an Accord 28 are acceptable as proof of insurance. “Just about everybody closes with an accord agreement,” said Charles Michael Prior, vice president of investments at Birmingham, Ala.-based Protective Life Insurance. “But third parties may not rely on this document anymore. Borrowers may be forced to have policy in hand at closings.”

THE SHADOW KNOWS

Lenders have grown more willing to finance deals involving shadow-anchored shopping centers, particularly those involving pools of several such properties, said speakers at ICSC’s Southeast Conference, in Atlanta, in September.

The term “shadow anchored” refers to a center that does not itself have an anchor but feeds off a nearby retailer’s traffic. “When you get four or five of these unanchored centers in a good location, that cuts the risk,” said Charles Michael Prior, vice president of investments at Protective Life Insurance. “It’s a smaller version of a CMBS pool.” The nature of the shadow-anchored center is changing as well, expanding to include more than just the typical unanchored open-air property across the street from a big box, lenders say. “We have a number of borrowers who have had to sell the anchor space in their center to the retailer and are left with only the shadow space,” said Prior.

Cap rates on shadow-anchored deals are expected to average 6.8% by year-end according to Real Capital Analytics. Five years ago, shadow-anchored deals garnered an average cap rate of 9.8 percent.

“The shadows keep getting longer, too,” said Thomas Butsch, executive vice president of Regions Bank. “The distance grows every time I get a new package.”