LET’S GO TO THE MALL: Wall Street Has Found Its Next Big Short in U.S. Credit Market.
It’s no secret many mall complexes have been struggling for years as Americans do more of their shopping online. But now, they’re catching the eye of hedge-fund types who think some may soon buckle under their debts, much the way many homeowners did nearly a decade ago.
Like the run-up to the housing debacle, a small but growing group of firms are positioning to profit from a collapse that could spur a wave of defaults. Their target: securities backed not by subprime mortgages, but by loans taken out by beleaguered mall and shopping center operators. With bad news piling up for anchor chains like Macy’s and J.C. Penney, bearish bets against commercial mortgage-backed securities are growing.
In recent weeks, firms such as Alder Hill Management — an outfit started by protégés of hedge-fund billionaire David Tepper — have ramped up wagers against the bonds, which have held up far better than the shares of beaten-down retailers. By one measure, short positions on two of the riskiest slices of CMBS surged to $5.3 billion last month — a 50 percent jump from a year ago.
Last summer I found myself across the street from the Citadel Mall in Colorado Springs for the first time in years, and the Dillard’s-end parking lot was cracked and in the process of being overgrown with weeds. Bricks-and-mortar retail hasn’t improved its position since then, so it’s difficult to see a path forward for that property — or many others just like it — which doesn’t include default.