Now that General Growth Properties Inc. has filed for Chapter 11 bankruptcy protection, the question is whether more recession-hit developers might follow.
Plummeting consumer spending has hit the profitability of many retailers. Circuit City, Linens-N-Things, Steve & Barry’s, The Sharper Image, Fortunoff and Mervyns filed for Chapter 11 protection and ultimately liquidated, shuttering hundreds of locations. Macy’s Inc., Foot Locker Inc., AnnTaylor Stores Corp. and Zale Corp. closed underperforming units that totaled into the hundreds. Meanwhile, Wal-Mart Stores Inc., Target Corp. and Gap Inc. have cut back or postponed planned expansion.
The result is that mall vacancy rates rose to 9.5 percent in the first quarter from the 8.9 percent registered for all of 2008, marking the largest single-quarter jump since 1999, according to Reis Inc., a real estate information company. With few, if any, new retail concepts in sight, shopping centers are loath to see retailers fail. That’s creating immense financial pressure on real estate investment trusts as centers lose tenants while those retailers remaining aggressively push for rent reductions.
Malls that wouldn’t have considered lowering rents 10 years ago are now struggling to keep their centers fully tenanted. The loss of rental income is taking a toll on the revenues of several REITs. General Growth Properties, the second-largest mall operator in the U.S., had been teetering on the verge of bankruptcy for months (for more on the filing, see sidebar). Simon Property Group on March 11 defaulted on payment of the principal of a loan for the Mall at the Source in Westbury, N.Y. Simon owns 25 percent of the property. Mills Corp. came close to seeking bankruptcy protection in 2007, when it almost defaulted on obligations on a $1.1 billion loan. Mills was bought out by Simon Property Group and Farallon Capital Management later that year. The Macerich Co. last month agreed to several refinancings on debt totaling $446 million.
There are some who believe the predominance of property owners has come to an end. “The balance of power has actually shifted from landlords to tenants as a direct result of the business climate,” said Naveen Jaggi, senior managing director of retail services at CBRE in Houston.
“Where we have a tenant that we believe is in extreme financial distress, we’re trying to work with them to come up with a mutually acceptable basis for maintaining their occupancy in the portfolio,” David Simon, Simon Property Group’s chief executive officer, admitted during the REIT’s year-end conference call on Jan. 30, 2009.
But the chief executive of a REIT who requested anonymity said the pressure is less on strong malls. “There is an increasing bifurcation of the good and not so good properties,” he said. “In challenged properties, where leases are coming up for renewal, landlords are dealing. In good properties, when leases are coming up, they’re sticking with the rents they want. The rents are holding steady. In a good mall, even if sales are down, rents will reflect future opportunities, not the business of the moment.”
Andy Grasier, co-president of DJM Retail, which provides lease-mitigation services to retailers, said mall owners are much more open to making deals, however. “Just a year ago, landlords weren’t being very responsive to rent reductions,” said Grasier. “Now it’s a different game entirely.”
Breaking News: @louisvuitton's men's artistic director @mrkimjones is leaving the French fashion house after nearly 7 years. Jones joined Louis Vuitton in 2011, following a three year tenure as creative director of British luxury goods brand Alfred Dunhill. Jones is to exit Louis Vuitton after showing his fall 2018 collection for the brand in Paris on Thursday. Read the full exclusive story on WWD.com. Link in bio. #wwdnews #wwdfashion
For men’s fall 2018, @giuseppezanotti drew on elements from streetwear, sport, biker, combat and rock ‘n’ roll. Pictured here are a pair of shoes from the collection, featuring zippers, rhinestones, and silver hardware. Head to WWD.com to see a roundup of the accessories from Milan’s men’s fall 2018 shows. #wwdfashion (📷: Andrea Delb)
To celebrate the 25th anniversary of @ralphlauren’s snowboarding collection, the brand is mining its archives. The iconic brand is reintroducing vintage styles and dropping new designs for a color capsule that will be available in Ralph Lauren stores and @openingceremony on January 25. The capsule will consist of 10 pieces, including the Snow Beach Pullover, pictured here, which is a collector’s item that rapper Raekwon wore in Wu-Tang Clan’s “Can It Be All So Simple” video. #wwdfashion (📷: Tom Gould)
For @rochasofficial’s pre-fall 2018 collection, creative director Alessandro Dell’Acqua channeled the sophisticated and intriguing Catherine Denevue in the film “Belle de Jour.” Polished collarless coats, midi skirts, suits and ’60s graphic motifs were all featured in the collection, adding a sense of discreet luxury. See the rest of the photos on WWD.com #wwdfashion
“We tried to produce clothing of that couture quality, but the most daunting part was that we only had a matter of days [to do it],” said costume designer Lou Eyrich, who recreated Gianni Versace’s iconic looks for @americancrimestoryfx. Eyrich searched online retailers and vintage shops for original pieces from the design house and for @penelopecruzoficial, who plays Donatella Versace. Head to WWD.com to read how she created the Versace world. #wwdfashion
Only three months after her stellar debut catwalk season, @kaiagerber has inked her first big design collaboration –– with @karllagerfeld. The collection blends Lagerfeld’s Parisian chic aesthetic and the model’s signature West Coast casual style via RTW, accessories, footwear and more. The #KarlLagerfeldxKaia collection will launch in September with a series of events. Get all the details on WWD.com. #wwdnews #wwdfashion
Harrods plans to remove the famous statue of Princess Diana and Dodi Al Fayed from the bottom of the Egyptian escalators and hand it back to Mohamed Al-Fayed. “We are very proud to have played our role in celebrating the lives of Diana, Princess of Wales and Dodi Al Fayed at Harrods and to have welcomed people from around the world to visit the memorial for the past 20 years,” said Michael Ward, Harrods managing director. “With the announcement of the new official memorial statue to Diana, Princess of Wales at Kensington Palace, we feel that the time is right to return this memorial to Mr. Al Fayed and for the public to be invited to pay their respects at the palace.” More on the news, with reporting by @loreleimarfil, at WWD.com. #wwdnews