Retail net absorption logged a 37.2% quarter-over-quarter leap in Q4 2023, growing to 17.6 million square feet, the highest level for the year. The fourth-quarter total was buttressed by a substantial jump in mall demand as such facilities have benefited from the rebound in physical retail post-COVID. According to a June report from Coresight, top-tier malls saw traffic grow from 2022 compared to 2019, while lower-tier mall traffic was up 10%—and mall absorption is starting to pick up in kind.

Meanwhile, overall deliveries of new retail space fell 5.1% quarter over quarter. The pickup in absorption coupled with the lack of offsetting supply pushed vacancy down 20 basis points to 4.0%, lowest since 2007. High costs are still holding back retail construction, presenting a challenge to retailers on the expansion track.

That challenge could turn out to be a big one if demand continues to outperform, with 2023 another active year for retail sector expansion. Per JLL’s figures, retailers announced 6,617 new store plans in 2023 (regardless of opening date). On the other end of the spectrum, just 4,412 store closures were announced.

Discount retailers are among the most active among expanding tenants, with Dollar Tree, Five Below, Burlington and TJ Maxx all among the top 10 retailers in new square footage signed. Dollar Tree tops the list by a considerable margin with 1.27 million square feet leased in 2023, handily exceeding second-place Target’s 761,800 square feet of new commitments.

Discounters are benefiting from bargain-hunting Americans’ response to ongoing inflation, with the Consumer Price Index (CPI) some 19% above its level in 2019. Discount retailers — chiefly dollar stores — announced  over 2,300 store openings in 2023.

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According to Yardi Matrix, the average asking rent for the month was $1,710, flat from December and up 0.5% year over year. It’s a tepid annual gain, but one that remains nonetheless notable given the recent surge of new apartment space in many areas, an influx attributed in large part to multifamily’s resilience even in the choppy commercial real estate environment of the past few years.

With more deliveries set to hit the market soon, Yardi anticipates another weak rent growth year in 2024. The analytics company is forecasting 540,000 deliveries this year, which would be a new record high if realized. Completions are expected to peak in 2024, though the pipeline remains busy with another 460,000 deliveries predicted in 2025.

The ongoing surge of supply, however, isn’t geographically consistent. Expanding secondary markets in the West and Sun Belt, like Austin, Miami, Charlotte, Denver, Nashville and Phoenix, are seeing the largest number of deliveries, as are fast-growing tertiary cities in the same regions, like Huntsville, Alabama; Port St. Lucie, Florida; Colorado Springs, Colorado; and Boise, Idaho. Even with absorption sturdy in such markets, their rent growth projects most weakly while tenants lease up the newly added space. Charlotte, Nashville, Phoenix and Austin all saw year-over-year decreases in rent, with Denver and Miami logging gains below the national 0.5% figure.

Meanwhile, rents in large hubs in the Northeast and Midwest are seeing the strongest gains. New York (up 5.5% annually); New Jersey (4.4%); Columbus, Ohio (4.2%); Kansas City, Missouri (3.4%); and Indianapolis (3.0%) posted the largest annual increases in January, while Columbus (up 0.8% from December), Indianapolis (0.6%) and Minneapolis-St. Paul (0.5%) saw the largest upticks month over month.

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Twenty percent of commercial and multifamily mortgage balances are set to mature in 2024, the MBA reported in its latest Commercial Real Estate Survey of Loan Maturity Volumes. The organization revealed the data at its annual Commercial/Multifamily Finance Convention and Expo in San Diego.

That figure equates to roughly $929 billion of the $4.7 trillion in outstanding commercial property loans, a 28% increase from the $729 billion that matured last year. Many of the loans that were originally set to see maturation in 2023 were instead pushed to this year, ballooning the 2024 estimate.

“The lack of transactions and other activity last year, coupled with built-in extension options and lender and servicer flexibility, has meant that many loans that were set to mature in 2023 have been extended or otherwise modified and will now mature in 2024, 2026, 2028 or in other coming years,” said Jamie Woodwell, the MBA’s head of commercial real estate research.

“These extensions and modifications have pushed the amount of [commercial real estate] mortgages maturing this year from $659 billion to $929 billion.”

Some investor groups are set to see a large fraction of the outstanding balances they hold reach maturation this year. For example, 25% of the outstanding commercial property loan balances held by depository institutions — a share that equates to some $441 billion — will mature in 2024. So will 31% of balances (approximately $234 billion) in commercial mortgage-backed securities, collateralized loan obligations or other asset-backed securities, as well as 36% ($168 billion) held by credit companies, in warehouse or by other lenders. On the other end of the spectrum, just 3%, or $28 billion, of outstanding balances held or guaranteed by Fannie Mae, Freddie Mac, the Federal Housing Administration or Ginnie Mae are set to mature this year.

When it comes to property types, hotels have the largest share of loans coming due at 38%, followed by 27% of industrial loans and 25% of office mortgages. Just 17% of retail property balances and 12% of multifamily-backed loans are set to mature in 2024.

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The Seattle-based national real estate brokerage reported that investors bought 46,419 homes in the fourth quarter, down 10.5% year over year to reach the lowest fourth-quarter level since 2016. Home purchases by investors have ebbed because high capital costs have combined with a lethargic rental market to depress investment returns, with many investors instead putting their money toward lower risk, higher return arenas such as Treasury bonds.

But among homes priced among the bottom third of local sale prices, investors remain active. Real estate investors purchased 26.1% of such homes sold in the fourth quarter, up from 24% in the same period one year prior and the highest percentage on record.

The investing appeal of more affordable homes in an environment with high prices and high interest rates is obvious, but Redfin noted another advantage: the lowest price tier also offers more potential for home value increases and therefore more potential for building equity.

Notably, while investors acquired a larger share of low-priced homes in the fourth quarter, the share of low-priced homes as a percentage of all investor purchases has actually gone down. Homes priced in the bottom third of local sale prices made up 46.5% of all investor buys in Q4 2023, down from 47.2% year over year.

Investors also acquired a larger share of high-priced homes during the fourth quarter than they did one year earlier (15.9% of homes in the top one-third of local sales prices in Q4 2023, compared to 15.4% in Q4 2022). The share of high-priced homes as a percentage of investor purchases was also up, growing to 28.8% in the last three months of 2023, up from 26.5% in the same period of 2022.

Investors bought 13.6% of mid-priced homes sold in the fourth quarter, down from 14.3% one year prior. Mid-priced homes made up 24.6% of all investor buys, down year over year from 26.4%.

Carrie Caruthers, a Redfin agent in California’s Inland Empire, said that investors remain active — in fact, while the 10.5% annual drop in investor home purchases during the fourth quarter was the sixth consecutive decrease, it’s the smallest downshift since investor activity first began falling during Q3 2022.

“I get tons of emails every day from investors looking for properties, but of course, they only want homes that are under market value, which are hard to come by,” Caruthers said. “When they find those properties, they pile in. I’ve recently seen an uptick in foreclosures, which investors are interested in because they often sell at a discount.

“I just sold one foreclosed house to an investor for $400,000. It probably would’ve sold for around $500,000 if it hadn’t been a foreclosure, but the investor got a deal because foreclosure purchases come with risks.”

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The bank, which saw Moody’s Investors Service lower its credit grade to junk status, suffered a drop of 70% in its stock price before recovering toward the end of the week. The recent troubles for NYCB began when the bank announced on Jan. 31 that it suffered a surprise loss of $252 million in the fourth quarter of 2023. The bank had notched a $172 million profit for the same period in 2022. It also reported $552 million in losses from bad commercial real estate loans. The hobbled bank slashed its quarterly dividend from $.17 per share to $.05 per share.

This might be just the beginning of tough times for NYCB, however. The bank’s poor performance was being blamed on the acquisition last year of $40 billion of assets from Signature Bank, which was among the three banks that failed early last year. Those failures set off alarm bells that the banking sector was in danger due to an increasing number of commercial real estate defaults.

NYCB is in the process of merging with Flagstar Bancorp, Inc., which operates 420 branches throughout the country, with an emphasis on the Northeast and Midwest. The acquisition of Signature Bank and merger with Flagstar makes the combined company one of the largest regional banks in the country, with more than $100 billion in assets. NYCB plans to start operating under the Flagstar name later this month.

There are worries that the troubles facing NYCB could spread to other top regional banks also holding loans for commercial real estate, including office buildings and retail properties, which could sour in the coming months and potentially create a repeat of last spring’s bank crisis.

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But California also has a number of challenges, and housing is arguably the most pressing. About 1.3 million renter households in the state, or 22%, are classified as extremely low income, according to the National Low Income Housing Coalition. And the state has a shortage of nearly 1 million homes that are affordable and available for these people, defined as those who earn less than 50% of the area median income.

A report this past December in The Wall Street Journal delved into the regulatory maze that has stalled many affordable housing projects in California and made them more expensive to complete. In San Jose, the cost to build a single unit of low-income housing in 2022 was $983,700, up 24% from the previous year.

San Francisco granted less than half as many housing permits last year as New Braunfels, Texas, which has one-eighth the population of the City by the Bay. And in one extreme example of a project that has been delayed by political battles and financing hurdles, a 49-unit apartment building in Los Angeles is reportedly set to open later this year after the nonprofit developer acquired the land in 2007.

Gov. Gavin Newsom recently signed several pieces of legislation that are expected to benefit developers of mixed-income multifamily projects. One of these bills is designed to streamline the approval process for qualified housing developments in jurisdictions that don’t create enough new supply by removing the need for an environmental study.

California has an estimated $68 billion budget shortfall across its current three-year fiscal forecast that’s tied in part to weaker-than-expected personal income tax revenues. The 25% decline in tax collections during the 2022-2023 fiscal year was “similar to those seen during the Great Recession and dot-com bust,” state legislative analysts wrote.

Still, California’s gross domestic product grew at an annualized rate of 2.9% in third-quarter 2023, close to the U.S. average of 3.5%. As of this past August, California’s nonfarm payroll employment exceeded its pre-pandemic level by 447,600 jobs. Employment gains in sectors like logistics, technology, construction and health care have surpassed job losses in other industries.

Silicon Valley is a hotspot for data center investments. CBRE reported that all of the new data center supply delivered in Silicon Valley during the first six months of last year was preleased. With an inventory of 410.7 megawatts at midyear 2023, Silicon Valley was the nation’s third-largest market for data centers, trailing only Northern Virginia and Dallas-Fort Worth.

The Golden State’s largest office markets continue to struggle. Newmark reported that San Francisco had a vacancy rate of 27.3% and asking rents reached a six-year low point in third-quarter 2023. In Los Angeles, office-using employment dropped by 3% during the first eight months of last year and 44% of all office buildings had vacancy rates of more than 20%. ●

Nowhere has the cooldown in U.S. industrial real estate been more apparent than in California’s Inland Empire, centered around the cities of Riverside and San Bernardino. A midyear 2023 report from Colliers showed that the metro area, which is the country’s largest industrial market, posted negative quarterly net absorption for the first time in more than 13 years.

Third-quarter 2023 data from Cushman & Wakefield showed a negative absorption figure of 1.8 million square feet (msf) from July through September. But absorption during the first nine months of the year remained positive at 1.2 msf. Asking rents in the Inland Empire at the end of Q3 2023 stood at $17.96 per square foot, down from a peak of $18.85 in Q4 2022 but still well above the national average of $9.73 for industrial space.

Cushman & Wakefield also reported five industrial sales valued at more than $25 million in the area during the third quarter. The priciest deal during that time was BentallGreenOak’s $144 million purchase of nine buildings totaling 458,000 square feet in the Chino submarket.

What the Locals Say

The resort markets along the coast — including the Coachella Valley, Palm Springs and Palm Desert — have done phenomenally well. They’ve far surpassed what they were doing in 2019 and have enjoyed record top-line revenues and record net profits. We’re now seeing those markets start to taper off.

On the other end of the spectrum are the downtown hotel markets that are heavily reliant on commercial business, and that’s gone in the opposite direction as people have continued to work from home. You have fewer employees in the downtown market, so that’s definitely impacted guest stays, as well as food and beverage, at those hotels.

We publish a biannual survey, and through the first six months of 2023, individual hotel sales transactions in California were down 53% from where they were in 2022. That is a record decline. We’ve been tracking sales for over 20 years and it’s even surpassed what we saw in the first six months of 2009. And that’s just tied to a huge disconnect between the buyer and seller expectations.

Hotels have not yet seen value declines of 70% to 80% like those seen in office space. But a classic example would be two of the largest hotels in downtown San Francisco. They’re both Hilton products, and in 2016, those hotels appraised for $1.6 billion. The publicly traded REIT that owns them has given the keys back to the lender. The debt is $725 million.

3 Cities to Watch

Irvine

This Orange County city has added a whopping 100,000 residents since 2010 to reach a current population of 314,000. Irvine serves as the home base for fintech firms like Acorns and Cloudvirga, as well as a number of startups in the software, digital media and real estate sectors. Three Nobel Prize-winning researchers hail from the University of California at Irvine, which has a highly diverse group of students and faculty.

Oakland

After losing its pro football and basketball teams in recent years, Oakland received another economic blow this past November when the Athletics baseball team announced its pending relocation to Las Vegas. Affordable housing is a key issue in the East Bay hub. Brooklyn Basin, a major redevelopment project that would build 3,700 new homes on the site of a former shipping dock, is still many years away from completion.

Sacramento

From agriculture and health care to education and clean energy, the California state capital has a diverse economy that produces more than $160 billion per year in goods and services. Colliers reported that the $773 million in commercial real estate sales across the metro area in first-half 2023 was down 63% year over year. Industrial and multifamily deals accounted for a respective 39% and 24% of this six-month sales volume.

Sources: Allen Matkins, Built in LA, CalMatters, CBRE, Colliers, Cushman & Wakefield, Executech, Forbes Advisor, KQED, National Low Income Housing Coalition, Newmark, SFist, The New York Times, The Wall Street Journal, UCLA Anderson School of Management, University of California at Irvine, Visit California, Wisevoter

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JLL’s U.S. retail outlook report for third-quarter 2023 stated that 145 million square feet of retail space has been demolished in the past five years. What has been the result of this change?

The reality is we are in a sub-5% vacancy environment right now. There’s literally no new space to lease. At the same time, there is a significant amount of retail demand for growth and expansion, and that is putting a lot of upward pressure on rents.

This year, we’ve seen rent growth in retail, something that hasn’t been achieved for a really long time. Compounding that is just the lack of new retail construction. If you go back to the 2006 through 2008 time frame, we were delivering about 150 million square feet of new retail space each year. But in the past couple of years, it’s been closer to 15 million square feet.

Do you see retail construction increasing this year?

In the short term, the answer is no. There are limited construction starts that are permitted and approved, or are already in the ground for 2024 and 2025. Given that there has been a reset in land values over the past 12 to 18 months, perhaps there will be an increase in retail construction. But it will have to be in 2026 and beyond. Costs have significantly increased, so it’s just really hard to make the economics work for new retail construction in primary and secondary market locations.

What do you see for the retail sector in 2024?

Rents are going to continue to rise in 2024, but the growth in retail is going to slow down a bit. I think we are still coming out of the pandemic-fueled environment, with retailers having great balance sheets and a lot of pent-up demand from consumers. But the consumer is coming under a little more pressure today, so I think that retail is going to continue to be really healthy, but consumers will be less exuberant and more realistic in their buying.

How will retailers handle the lack of new space?

Healthy retailers are going to be looking for creative ways to expand their footprint. They may retrofit vacant spaces that aren’t their typical prototype in order to build new stores. They may go into secondary and tertiary markets where they otherwise might not have gone before. You are likely to see some consolidation of retailers and that, perhaps, will create some opportunities either for expansion or addition through subtraction. If rates cooperate and we are in a lower interest rate environment — and given the amount of new capital that wants to be in retail — there is going to be a ton of investment activity in the retail space.

The JLL retail report showed that malls were still suffering due to negative absorption in 2023. What do you see happening with malls this year?

What’s happening in the mall space is continued bifurcation between models that are thriving and properties that require reinvention. The best-in-class, fortress-style malls are actually seeing increased productivity and really strong same-store sales growth. In most instances, the best of the best assets are performing as well, if not better, than they ever have.

How are malls reinventing themselves?

In some cities, you continue to see multifamily developments at malls. You will also see more medical offices. Malls are sort of living, breathing organisms, and I think they drive a lot of traffic. So, they have the ability to sustain and generate other uses at the mall as well.

A lot of the better-quality malls have more outward-facing food, beverage and entertainment elements to them. It’s not just pass through a door and enter a cavernous mall space today. There is a lot of activity in terms of repositioning and redevelopment, including creating exterior spaces around entrances. It is not just an inward-facing product anymore. ●

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And while nothing close to an apocalypse has occurred, retail did take another turn in its long journey. Staples of 20th-century shopping such as Sears and Bed, Bath & Beyond have largely shuttered their doors. Others, like JCPenney, are doing whatever they can to stay afloat. Many malls have permanently closed, with others on the chopping block. And even some power centers and neighborhood centers have either closed or sit half empty.

When we look at the long-term national-level performance and development data, it is hard to find many bright spots. Construction of retail property has been anemic, with less than 100 million square feet of space added over the past decade, or less than 5% of total U.S. inventory, Moody’s Analytics found. For context, office-sector inventory grew by about 10% during the same period. As for rent growth, retail assets have fallen well short of inflation, even prior to the recent run-up in consumer prices.

But all of that is in the past, and while the retail sector will continue to see changes, we do see a new equilibrium on the horizon. The industry has somewhat rightsized itself, finding ways to appeal to consumers who desire the more social aspects of shopping and entertainment while also providing “showrooms” and customized spaces to enhance the online experience.

How have the performance metrics fared recently? As the accompanying chart illustrates, the U.S. retail vacancy rate has stabilized at a shade over 10%, while effective rent growth has picked up. This data shows that the sector still has plenty of room for further growth, but the aggregate statistics also mask some interesting pockets of positive activity.

One of the most startling statistics is rent by vintage. In the majority of metros around the country, there is a rent premium of 50% to 100% for properties built in the past decade — and recent rent growth has followed suit. Metro-level differences are also noteworthy. The areas of the country that have not seen large population or income gains tend to have elevated vacancy rates, often due to the disproportionate amount of older properties that are tied to a lack of development funding.

Some of the clearest examples of this trend include Indianapolis; New Orleans; New Haven, Connecticut; and Syracuse, New York, each of which have retail vacancy rates of more than 15%. Creative, modern developments in these metros may have great potential given the older stock.

Where does this ever-evolving property type head from here? Well, e-commerce is likely to continue growing. The online share of all retail sales has been trending around 15% for a while, and Moody’s Analytics expects it to jump to 20% by the end of the decade. Along with continued shifts in population and consumer preferences, this will sustain some of the same nuances for sector.

The national-level metrics will stay similar to where they are now, while older inventory will make way for trendy developments that incorporate more of the experiential and omnichannel needs of modern society. As always with commercial real estate (and maybe most importantly with retail), a close inspection of the asset, the tenants and the location are vital for a successful investment endeavor. ●

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Known as a top tourist destination because of its warm climate, sandy beaches, historic sites and enchanting cities, Spain is a nation of nearly 47.5 million people. Beyond tourism, Spain’s top industries include auto manufacturing, agribusiness and energy.

During the year ending in second-quarter 2023, Spanish investors proved to be quite interested in U.S. commercial real estate. During this period, some of Spain’s top companies acquired 17 U.S. properties totaling more than $2.2 billion, according to MSCI Real Assets. This amount alone is impressive enough. But the shocker is that the figure is 5,000% more than what Spanish investors spent from mid-2021 through mid-2022.

The increased activity vaulted Spain to fourth place on MSCI’s ranking of the top 25 sources of capital into U.S. commercial real estate. Spain trailed only Japan, Singapore and Canada on this list. Spain’s ascent has been meteoric as it ranked No. 7 in calendar year 2022 and No. 25 in 2021.

One of the main reasons for this considerable growth in activity was the real estate expansion of Pontegadea, a multinational investment company owned by Spanish billionaire Amancio Ortega. He made his fortune by founding the fashion retailer Inditex, the largest fast-fashion group in the world and the owner of the multinational clothing chain Zara.

Pontegadea, which is developing a large real estate portfolio, has been spending hundreds of millions of dollars to acquire a variety of U.S. properties. These range from Amazon-leased office space in Seattle to warehouse and distribution centers in California, Florida and Pennsylvania.

According to MSCI, Pontegadea acquired 12 industrial properties and one apartment complex in 2023. The main seller of the industrial assets was Blackstone, one of the largest landlords in the U.S. Pontegadea appeared to be capitalizing on Blackstone’s need for cash amid the commercial real estate downturn. Blackstone was known to be selling parts of its portfolio, including casino assets and various industrial properties that were performing well.

In 2022, Pontegadea acquired five logistics centers located in Tennessee, South Carolina, Virginia, Pennsylvania and Texas. The largest single U.S. deal by Pontegadea in 2023, according to MSCI, was the August acquisition of a 45-story apartment complex in Chicago for $231.5 million.

Pontegadea isn’t the only Spanish company that has recently expanded its real estate empire. The Mallorca-based travel conglomerate RIU Hotels & Resorts acquired a six-story office building in Manhattan for $173 million. The October 2023 purchase was an intriguing move for RIU, which owns 96 hotels in 20 countries. The building was slated to be demolished to make way for a hotel tower, but the previous owner was unable to secure permits from the city. It will now be up to RIU to convince officials to back a new plan.

Only time will tell if Spain’s major investors continue to find U.S. apartment complexes, offices and industrial space enticing. But it seems like a safe bet that the wave of acquisitions by Spanish investors has yet to end. ●

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The danger is that the current high interest rate environment will make refinancing the loans on devalued properties difficult and expensive, resulting in waves of defaults and more pain for everyone involved. A lot of numbers have been bandied about concerning the volume of loan maturities, but according to the Mortgage Bankers Association (MBA), of the $4.6 trillion in existing commercial real estate loans, about $2.6 trillion will mature in the next four years.

This issue became real in February 2023 when Canadian real estate conglomerate Brookfield walked way from $784 million in loans connected to two office towers in downtown Los Angeles. At the time, media outlets reported that Brookfield had made it clear months earlier that it might not be able to refinance debt obligations on the properties. Brookfield was described as a bellwether for where the office market was headed — and it wasn’t alone. That same month, Columbia Property Trust defaulted on about $1.7 billion in debt tied to seven major properties.

The defaults by two high-profile landlords helped to solidify a sense of foreboding, which has continued to this day. In this issue of Scotsman Guide, in fact, author Rob Finlay writes about the refinancing problem (“Scale the Wall of Maturities” on Page 30) and discusses what mortgage originators can do to help mitigate the impact.

What’s unclear is how large this massive wave of refinancing needs will be. Yes, the default rate is up and there have been a few high-profile cases, but the disaster has yet to hit commercial real estate on a wide scale. Is it possible it won’t?

Jamie Woodwell, the MBA’s vice president of research and economics, explains that there are aspects of this problem that industry watchers need to keep in mind. This includes the fact that loan maturities are spread over a long period of time, in a wide variety of industries and in every geographic location, so the results will be as varied as the properties in question.

Other factors may help to lessen some of the damage, or at least spread it out. For instance, Woodwell found that of the $4.6 trillion in commercial real estate debt, nearly $2 trillion is for multifamily properties, a relatively strong sector with typically longer loan terms than other asset classes. Less than 10% of multifamily debt was set to mature in 2023, but there will be more in later years. For instance, about 16% of current multifamily debt will be due in 2032 when the economy is bound to look much different than today.

Woodwell remembers when the MBA began creating its lending survey during the global financial crisis of the late 2000s. There were worries then, too, about a wall of maturities combined with limited capital availability.

“One of the key takeaways that we found then, that I think continues to be true today, is that commercial mortgages tend to be a relatively long-lived asset,” Woodwell says. “You have an awful lot of loan types out there and, among them, commercial mortgages tend to be longer in nature. So, even now in the peak of 2023, with the greatest volume of maturities in our survey, it’s still only 16% of the total outstanding balance.”

Inflation was also reported to be falling quickly at the end of 2023 and Federal Reserve members have said that rate cuts are in the offing. Such a move would greatly lessen the sting of refinancing.

That’s not to say that commercial real estate isn’t stressed. Property values have cratered, with Capital Economics recently estimating that overall commercial real estate values fell 11% in 2023 alone and are expected to shed another 10% this year. The office sector, alone is expected to lose another 20% in 2024.

Woodwell says there’s a great deal of uncertainty about where property values stand. But it’s clear that delinquencies are on the rise. Woodwell points out that, through the first 10 months of last year, delinquencies rose in all asset classes, with the office delinquency rate exceeding those of hospitality and retail for the first time since the onset of the COVID-19 pandemic. “We are seeing stress in the market,” Woodwell says. “Pretty much every capital source has reported an increase in delinquency rates.”

One sector that may do better than expected is retail. Capital Economics expects retail valuations to increase by 6% per year through 2028. Plenty of retail sites remain under stress, but Chris Angelone, the co-leader of JLL’s national retail group, believes that poorly run operations have already been flushed out, so the owners now in place at the better-performing malls are often the best operators. Lenders would be loathe to take back those properties when quality operators are already in place.

“I think, generally speaking, that lenders are going to work with their borrowers on performing assets,” Angelone says. “But obviously, the valuations are going to be much different than before.” ●

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