The Prizm Outlets mall, about 40 minutes' drive south of Las Vegas on the California border, lost 95% of its value in six months. It may not be the last mall to do this.
Formerly known as Las Vegas Fashion Outlets, the Primm, Nevada mall auctioned on Wednesday for a final price of $ 1.525 million, compared to an estimate of $ 28.2 million in July, according to a person with knowledge of the results at commercial real estate auction house Ten-X. The buyer was not disclosed.
It is the first property auction linked to what is known as the CMBX 6, a commercial real estate credit derivatives index with heavy exposure to malls and malls. This is based on data compiled by Bloomberg.
"We expect the malls' liquidation to continue: 31 of the 39 malls in CMBX 6 are currently depreciated," said Dan McNamara, principal at MP Securitized Credit Partners, who bet against CMBX 6 as part of his broader strategy .
57.5% of the property is currently occupied by the anchors H&M, Nike and Williams Sonoma. That came out of a report earlier this month that collected payments from bondholders from the mall. The mall closed on March 17th due to the Covid-19 pandemic and reopened on June 1st.
Representatives from Prizm Outlets and Rialto Capital Management, vendors and servicers, declined to comment. A call to the mall's marketing agent was not returned while a representative from Ten-X confirmed the auction closed and declined further comments.
A loan on the property, with an original balance of $ 73 million, was bundled into a commercial mortgage-backed security named COMM 2012-CR4 in October 2012. This is one of 48 loans put together, according to data from Bloomberg. That year the property was valued at $ 125 million.
While the AAA-rated portions of the transaction have so far retained their grades, all ratings AA and below have been downgraded multiple times by rating firms, including a number of cuts by Moody's Investors Service in July.
Miami-based Rialto sealed off the mall in 2018, invested in upgrades, and kept it open. This is evident from the information provided by the Servicer and the Las Vegas Review Journal.
In 2017, firms such as Deutsche Bank AG and Morgan Stanley recommended placing bets on commercial real estate, and specifically malls and malls, using commercial mortgage bond indices in a trade that became popular.
The Series 6 of the CMBX index, which is linked to the debt securities issued in 2012, has an oversized exposure to shopping malls, making it attractive to traders looking to bet against retail space. The short bet was bad for a couple of years as the malls managed to survive.
But in light of the pandemic's lockdown orders last year, fate was reversed. People stayed at home and shopped online, adding to the existing threat to brick and mortar stores, and even after many states allowed retailers to reopen, shopper traffic remained low.
While there will certainly be more casualties in shopping malls, there may also be some winners, say market watchers.
"Retail stores that are well positioned geographically or that have rethought the customer experience have the best chance of success from here," said Chris Sullivan, chief investment officer of the United Nations Federal Credit Union.