A bidding war for Macy’s, coming as the retailer plans to close 150 stores, has implications for shopping mall owners nationwide and the billions of dollars of loans that finance their centers.
While a buyout could be positive if Macy's were to land a new owner with deep pockets, it also may spell trouble for malls and their lenders if a new owner follows through on plans to shut down the locations.
While there's no guarantee a sale will take place, the loss of such a major department store could reduce foot traffic at malls, analysts say, lowering sales for neighboring tenants, and ultimately driving down revenue for landlords on the hook for the debt.
Macy's is reviewing a second all-cash buyout proposal from two investment firms, delivered Sunday, valued at $6.6 billion. The company has yet to make public a list of the 150 stores it plans to close over the next two years, though San Francisco public officials said the company plans to sell the flagship in Union Square.
The retailer anchors at least 80 malls, totaling more than 100 million square feet, that are collateral to about $24 billion in loans on the commercial-mortgage backed securities market. That's according to data from CoStar Group and Morningstar DBRS, a credit-ratings firm that plans to closely watch the situation.
Of that debt, about $3.6 billion is in special servicing, indicating a mall is considered to be experiencing some sort of financial difficulty, whether it be from operations or the ability to meet or restructure payments.
Much of that $3.6 billion in debt is tied to major retail property owners Brookfield, Simon Property Group and Unibail-Rodamco-Westfield. Those firms did not respond to CoStar News requests to comment.
Stores at weaker performing malls could be targeted, based on comments by Macy’s CEO Tony Spring on a recent earnings conference call with Wall Street analysts.
“We have compared value to operate versus value to close and look at demand in each market to determine the right construct of stores and digital with a focus on being in the strongest centers,” Spring said.
Macy's declined to comment specifically on its landlords' financial situations.
The loss of Macy’s at malls with weaker sales could further hurt their performance, Gwen Roush, senior vice president, North American CMBS ratings for Morningstar DBRS, said in an email to CoStar News.
“For those malls already exhibiting signs of decline, whether in the form of declining occupancy rates or sales figures — or most likely, both — it can be expected that the Macy’s store at that location is likely struggling, as well,” Roush said. “As such, those would definitely be stores we would expect to be picked for closure as the retailer trims its footprint.”
As part of its analysis, Morningstar DBRS monitors retail sales trends and designates stress for loans where anchor and/or smaller so-called inline tenants show significant performance declines, she said.
Alan Todd, CMBS strategist for Bank of America Research, has also begun delving into the implications of the announced closings on outstanding CMBS debt.
Todd alerted clients Monday in his weekly CMBS commentary that the bank is working to get hold of a closing list and will alert readers on updates as they arise. In the meantime, Todd noted that the bulk of the outstanding debt is tied to properties concentrated primarily in larger coastal markets, including New York and California.
Macy’s anchors various malls through both leased and owned locations. Even where it owns stores, a closing could spell trouble for the entire mall.
“In some cases, there are co-tenancy clauses that would be triggered by the closure of an anchor store,” Roush said. “If that were the case, inline tenants may be eligible for reduced rent or other concessions until the space is backfilled. Generally, we see those clauses kick in when it’s two or more anchor closures so this would be more impactful for those malls already missing an anchor.”
The ripple effects indicate the potential for reduced foot traffic and confidence in the mall’s viability from the perspective of inline tenants, she said.
Here are three notable examples of properties tied to CMBS loans in special servicing where Macy’s has an anchor lease expiring soon:
Capital Mall, Washington
The Capital Mall in Olympia, Washington, is part of the collateral backing a $489 million loan securitized in CMBS deal GSMS 2018-SRP5. The mall was one of five previously owned by Starwood Capital Group, which gave up control of the mall in the summer of 2021 following declining performance exacerbated by the COVID-19 pandemic.
Macy’s has a 113,190-square-foot lease expiring at the mall in 2029. The mall generated a loss for 2022 after a debt payment of $2.3 million, according to CMBS bondholder reports.
Prince Kuhio Plaza, Hawaii
Prince Kuhio Plaza in Hilo, Hawaii, backs a $35 million loan in special servicing securitized in COMM 2013-CCRE10. Macy’s has a lease there that expires next year.
The loan transferred to special servicing last summer due to maturity default, according to bondholder notes. The lender is reviewing modification terms with the borrower, a Brookfield entity.
The property primarily serves local shoppers , as it is located some distance from the main tourist areas on the island. An updated appraisal has not yet been finalized, according to Morningstar DBRS, though the firm anticipates a significant decline in value from the appraised value of $71 million at the issuance of the loan, “given the property's dated appearance, declining occupancy, and upcoming scheduled lease roll.”
Coastland Center, Florida
Coastland Center in Naples, Florida, backs a $98 million loan in special servicing securitized in COMM 2013-LC6. Macy’s has a 150,361-square-foot lease expiring in December 2026.
The borrower, an affiliate of Brookfield, and the special servicer executed a forbearance agreement in January that extends the maturity date of the loan to May 2025, bondholder notes show. The property’s most recent appraisal last summer was $74.6 million, down from $233 million in 2012. In 2022, the property generated a loss after accounting for debt payments, according to the notes.