2houndz

General Growth Properties Bankruptcy: Not the End of Malls

Todd -
You cannot look at where an anchor tenant such as Dillard's stacks up in a mall owner's portfolio in terms of income and say "see - they are not a significant poportion of the income, so no worries if they go belly-up." In all the development and redevelopment deals I've been a part of along with Dillard's, I remember none where they paid significant rent, and few where they paid their fair share of the operating costs. Anchor stores were supposed to be loss leaders. They usually pay next-to-nothing, build their own stores and are suposed to drive traffic in the center.

Now one cold argue that Dillard's for instance has not really been driving traffic for years, and since their presence does little for the center's bottom line, the developer would be better off without such a horrible retailer as they could then do something else with the space. But we all know that's not the case for C malls right now. I've done enough Steve and Barry's deals in those vacant doors for $7 rent, 7 years and $42 in cash payment (yeah - get your calculator and figure the NPV on that pile of crap) just to see them go under in record time.
Dillards and BonTon are absolutely dismal companies that deserve to fail, but make no mistake that another dark anchor in an already struggling mall could mean death to that development. If you don't think so I could take you on a tour in Ohio, Florida, New Orleans and several other areas and show you the failures that have already occured.
And another thing on these cap rates. Show me a willing buyer at ten or less, and I'll show you people who are ready to make a deal, assuming they are not underwater at ten. Maybe GGP is big enough to twist arms, but in my world of smaller players (but still my world includes publicly traded REITs), this stuff is not even getting refinanced at sub-12%, so I doubt if the buyers exist at 7 or 10, regardless of what the owners and bankers fantasize and tell the investing public.

Bottom line at GGP has the same fundamental problem as retail real estate overall - Too much money chasing too little talent. How hard is it to see that these people took enormous gambles with other people's money without understanding leverage, risk, or in many cases basic finance? Sure they may have been great creators of special retail environments or some such nonsense that's so subjective you or I could never question it, but I've been across the table from GGP on deals where they simply did not understand the math or creation of value.

Regardless of anything that I have to contribute here, I see that their stock is on a tear, which I suppose is all that matters. You can't fool all of the people all of the time, but you can in fact fool some of the people all of the time.

Why Is Abercrombie & Fitch Giving in on Pricing?

Here's the key idea left out of your entire argument - Their business is fashion.

It's called supply and demand. They don't sell staples, they sell clothing to fickle teenagers. They happen to have supply, and if today's offensive slogan on a T-shirt doesn't sell quickly, it's worthless. They must find a retail price that moves it in order to make way for tomorrow's goods.