From The Wall Street Journal:
Mall landlords are increasingly walking away from struggling properties, leaving creditors in the lurch and posing a threat to the values of nearby real estate.
As competition from online retailers batters store owners, some of the largest U.S. landlords are calculating it is more advantageous to hand over ownership to lenders than to attempt to restructure debts on properties with darkening outlooks.
That, in turn, leaves lenders with little choice but to unload the distressed properties at fire-sale prices.
. . . .
“We’re seeing a boatload of these kinds of properties coming to market,” said James Hull, managing principal of Augusta, Ga.-based Hull Property Group, which bought five malls from foreclosure sales in 2016. “There have been some draconian losses for the enclosed-mall business.”
. . . .
As mall property values sink below their loan balances, “some mall owners are more aggressively taking the step to walk away,” said Morningstar Credit Ratings Vice President Edward Dittmer.
Link to the rest at The Wall Street Journal (Link may expire)
In my area, where jobs were disappearing faster than cookies in my house, more and more malls were being built. There was no lack of retail space, as most remained half-filled, if that, so what was the point? Many were built in areas where there was no easy access, or in off-the-wall zones.
I think the point for the developers were getting the county/city to fund the water, sewer and electrical connections, funded on the back of stressed tax payers. Add in that police and fire departments are already on budgets and overwhelmed, and the short period most stores stayed open, and it’s no wonder people decided to ignore them.
We have the same issue with companies wanting to come in, with promises of all the jobs they’ll bring. Less than five years later, they’ve moved on to the next cheap labor state, and the taxpayers are stuck with buildings that stand empty for years.
There’s very little I really need to see in person before I buy. Shoes and the few clothes I need are about it. I don’t “do” boutique shopping, though.
Del Amo Mall in Torrance, CA is finishing up a $300 million renovation/addition and is jammed. Especially the new part.
However, the new part is full of high-end la-de-da boutique stores, such as The Flip-Flop Shop selling $100 flips (no kidding, no exaggeration!)
I don’t shop in the new part. I go to the old part where there is Macy’s, Penney’s, Burlington Coat Factory, and Sears. But then, I’m too old and too unhip to be interested in the new stores and their trendy, expensive merchandise.
I’ve been wondering if this might be the future of local shopping. Those expensive items you must see in person first, like a leather jacket, designer perfume, or a diamond ring. Of course, there will also be things you can’t get online or can’t wait a few days for (diapers? unbleached flour? A new thermostat? more pens!) Local B&M shops will always exist for some things, at least until drone delivery becomes a real thing…
Basically, high-end boutiques have to be bricks and mortar. They’re not selling you products, they’re selling you a highly personalized service of fawning and sucking up and making you feel like a big shot for paying too much. That kind of thing has to be done in person to work well.
The USA is a conglomerate of 50 smaller financial experiments. What’s the number of Americans voting with their feet annually? 15%? 25%?
It’s a fine tradition. Every time NY raises taxes, it loses more people. Just look at California.
One of the things about the rise of online shopping — it lets you live almost anywhere (where local costs/taxes are less expensive) and still keep 90% of the benefit.
Not all the benefit, mind you — my UPS driver likes to opt out of driving up my modest hill and make me drive 6 miles to the post office to pick up my “to the door” packages. That and rural satellite internet are a drag, but everything else is ducky.
“It’s a fine tradition. Every time NY raises taxes, it loses more people. Just look at California.”
Now wait just one minute. Doesn’t Illinois hold the current record for people heading to the exits?
Dan (still here because now there’s five grand kids.)
Colorado and Nevada beg to differ.
C.f., Californication.
We had a similar problem re: package delivery (not with UPS but with the USPS) until we complained to Amazon. I don’t know where it went from there but the problem disappeared virtually overnight.
To save bricks and mortar shops, the rents and rates (do you have these local business taxes in America?) need to plummet. But this is unlikely to happen until it is far too late to save most retailers.
Yes, there are property taxes on businesses in the United States. At a higher rate for commercial property than for residential property.
Its unlikely that property tax rates will go down, however. In the US, these are managed, assessed and collected b local municipalities. Its how we pay for police, fire, and other services, which major cities already don’t have enough of. Lowering property taxes in these areas would necessitate raising income taxes, or sales and use taxes.
Lowering property taxes in these areas would necessitate raising income taxes, or sales and use taxes.
This does not follow. Often, lowering property tax rates on business encourages the growth of more businesses. Up to a point, the net effect is to increase property tax revenue. Unfortunately, local politicians are seldom well equipped to calculate the point at which tax revenues will be maximized, and some of them explicitly do not care.
One of Amazon’s advantages is its ability to build its warehouses in comparatively low-tax jurisdictions. But those jurisdictions have low taxes because somebody chose to do so. Localities with high tax rates have deliberately chosen a course of action that tends to drive customers away from local businesses and towards online merchants. Evidently they are willing to pay that price to raise the money for the services they are providing instead; but they have no grounds to complain that the price has to be paid.
“Willing to pay that price” indicates that the politician in question has actually realized there is a price, much less contemplated paying it or not.
I grew up by more than one school system wherein the approach to maintenance was “Why pay money for maintenance when we can fund the football team and administrator salaries? Just let the building fall apart until it’s a hazard, and then we can put out a bond for the voters to pay for a new one.”
True, that.
The area where I live (NorCal) is a perfect example of these problems. In my small town, the bond debt we have for multiple fire departments, schools, etc., is mind-boggling. The price of real estate is very high, as are the taxes that go along with it. Less than 25% of residents of this county can afford to buy here (probably half that because of increasing prices and interest rates the last few years). The nearby shopping mall now charges for parking and has a reputation as a hangout for gangs and other punks.
On top of that, we not only have a state sales tax, but also county and local sales taxes. To add insult to injury, they recently enacted a “bag ban” forcing people to buy shopping bags that are far less environmentally friendly than the banned recyclable plastic bags. This ban applies everywhere. Yes, you have to buy a bag for your clothes from Old Navy or your shopping trip to Target.
I laugh every time I see a “Buy Local” sign. If businesses in this county wanted my money, they would make it a pleasant and price-competitive environment. They would take it up with the Chamber of Commerce and county supervisors, but apparently, they aren’t worried.
> parking fees
The next step is the cover charge, where you have to pay just to get into the store, whether you buy anything or not.
“We’re selling less stuff, and our profits are down!”
“Let’s make it even more miserable for our customers, then. Amazon is killing us!”
Good point. Where I lived in the UK, I’d often drive into town at lunchtime to do some shopping. Then they started charging a minimum fee of two pounds for parking. So I stopped.
A few years later, the town-centre businesses were complaining that no-one was going there any more.
They train you to not go there unless you’re sure it’s worth your while, and then get upset because you took their training to heart and don’t go there unless it’s ‘worth’ it.
In the meantime you look at all the miles and money you saved ‘not’ going there.
“Up to a point, the net effect is to increase property tax revenue.”
Absolutely. The Laffer Curve.
Dan
You know, everybody loves to blame online shopping. But it occurred to me, after reading the NYT asking if cities have reached peak millenial, that malls became a thing when the baby boomers’ massive population surge created a massive number of teens who needed a place to hang out, combined with the relative economic prosperity of the 80’s meaning they had money to blow.
We don’t have any more massive population booms of teenagers coming down the pipeline, needing a place to hang out. Combine falling audience numbers in their core demographic with the well-publicized “urban youths” engaging in knockout games, brawling, and flash mob riots / looting sprees, and the image as a safe place to hang out is destroyed. So parents are loathe to let the shrinking pool of teens hang out in potentially dangerous areas, while the occasional adult shopper now views malls as a dangerous place on top of being a hassle of parking and traffic.
Top it off with six straight “summer of recovery”s where the size of the food packages keeps getting smaller while the price also goes up, and people are struggling to find a job, or pay the rent after the Obamacare premiums skyrocketed, and there’s just not that much free cash to spend at the mall.
But online shopping is an easy target to blame. And it’s partially true.
The funny part is that, if Trump actually manages to bring jobs back to America, this may be a good time to be buying a mall…
The jobs may not be coming where the malls are dying.
The business climate varies by state and region and the same climate that stresses local businesses will drive new investment elsewhere.
C.f., Tesla and the Gigafactory.
Between this and the ‘Barnes & Noble: Read ’em And Weep’ below suggests to me a ‘crash’ of sorts is coming to re-equalize things a bit …