Mall REITS Reeling after Forever 21 Bankruptcy

October 4, 2019 | Investments, News, Real Estate
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Another Retailer Bites the Dust. Well, now what for Malls?

Forever 21 is just the latest retailer to file bankruptcy and announce a wave of store closings. The news will impact Real Estate Investment Trusts that own mall properties (Mall REITs).

The retailer will close more than 175 properties around the United States. The decision leaves mall operators scrambling to lease or repurpose the space.

These operators already face declining traffic from the rise in E-Commerce and other major retail closings over the last few years.

How Forever 21 Impacts Mall REITs

At this point, many mall REITs and property owners must feel like Sisyphus eternally pushing the rock up the hill only to watch it roll back down. They scramble to fill one space and watch another wave of closures force a new search for new tenants.

Forever 21 is just one retailer shutting down stores. The numbers are much higher.

According to Coresight Research, 8,558 stores have closed. Now, as many as 12,000 stores could close by year’s end.

Store closings hit an all-time high this year. And, we still have three months left in 2019.

The death of retail is having a harsh impact on shopping mall REITs in 2019.

On average, the group is down over 13% so far this year. Further, the replace or repurpose problem has few solutions. Not even Bill Ackman has enough money and time to turnaround all of the retail malls that continue to decline.

A few band-aids have been applied by Mall REITs.

Retailers are reaching out to health and fitness facilities, entertainment companies, and digital brands. Those companies can provide needed physical space to showcase products. It also allows customers to return products in a store instead of through the more expensive shipping option at the retailer’s expense.

Data from real estate research firm Reis shows that occupancy rates are at eight-year lows, with 9.4% of space nationally sitting empty right now.

That’s a lot of space to fill in a slow economy. This trend will likely continue to pressure results and stock price prices for mall REITs.

[Related story: REIT Industry Shows Growth in Acquisitions]

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