Vegas mall that lost 95% of value might be just the beginning

Las Vegas

THE Prizm Outlets mall, about a 40-minute drive south of Las Vegas on the California border, lost 95 per cent of its value in six months. It may not be the last mall to do so.

Formerly known as the Fashion Outlets of Las Vegas, the Primm, Nevada mall was auctioned off on Wednesday at a final price of US$1.525 million, compared with a US$28.2 million appraisal in July, said a person with knowledge of the results on commercial real estate auction site Ten-X. The buyer was not disclosed.

It is the first auction of a property linked to the so-called CMBX 6, a commercial real estate credit derivatives index with heavy exposure to shopping centres and malls, data compiled by Bloomberg showed.

"We expect mall liquidations to continue: 31 of the 39 malls in CMBX 6 are currently impaired," said Dan McNamara, a principal at hedge fund MP Securitized Credit Partners, which has bet against CMBX 6 as part of its broader strategy.

The property is currently 57.5 per cent occupied with anchors H&M, Nike and Williams Sonoma, said a report this month from its servicer, which collects payments from the mall for bondholders. The mall closed on March 17 due to the Covid-19 pandemic and reopened on June 1.

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Representatives from Prizm Outlets and Rialto Capital Management, the seller and servicer, both declined to comment. A call to the mall's marketing agent was not returned, while a representative for Ten-X confirmed the auction was completed and declined further comment.

A loan on the property with an original balance of US$73 million was bundled into a commercial mortgage backed security in October 2012, one of 48 loans packaged into the multi-loan transaction known as a conduit, data compiled by Bloomberg showed. That year, the property was valued at US$125 million.

While the AAA rated parts of the transaction have kept their grades so far, all rating tiers AA and below were downgraded several times by credit ratings firms, including a series of cuts by Moody's Investors Service in July.

Miami-based Rialto foreclosed on the mall in 2018 and invested in upgrades and kept it open, showed servicer filings and the Las Vegas Review-Journal.

In 2017, firms including Deutsche Bank AG and Morgan Stanley recommended betting against commercial real estate, and in particular malls and shopping centres, using indexes of commercial mortgage bonds, in a trade that became popular.

Series 6 of the CMBX index, linked to debt issued in 2012, has outsized exposure to shopping malls, making it appealing to traders who want to bet against retail space. The short bet soured for a few years as malls were able to survive.

But fortunes reversed amid the pandemic's lockdown orders last year. People stayed home and shopped online, and even after retailers open up again, shopper traffic remained low.

While there will surely be more mall casualties, there may also be some winners, market observers say.

"Retail outlets that are well positioned geographically or that have re-thought the customer experience will have the best opportunity for success forward from here," said Chris Sullivan, chief investment officer of the United Nations Federal Credit Union. BLOOMBERG