The smart people that I see in the space are creating holistic places that is future proof with mixed use developments that offers live, work, play dynamics that includes office, multi-family, and retail. I think these development are future proof for at least another 20 years which give me more comfort. The traditional malls are on a collision course with the trend. I would bet that Amazon and packages continue to eat away at the Malls. I think the 3.5% unemployment is giving the malls breathing room. If we ever hit 6-7% unemployment, things can get dicey really quickly.
As BG2008 noted, many malls better located malls can probably survive which a lot of square footage being repurposed for different uses, like mixed living, offices, restaurant, community centers. The problem that I see with this is that it’s not clear to me that the rents the owner is getting after that conversion is higher than what the malls are getting right now. It may still make sense to do the conversion, when the owner can convert a 8-9% cap rate asset with a murky future into a 5-7% cap rate asset with a supposedly safe future, if you look at NAV and even including the cost of conversion. However, the owner will not see an increase in FFO from this, despite investing more Capital (or increasing the debt load) although NAV May increase. This is a bit what we are see8ng with all these REITs, their FFO is decreasing, their debt is often flat or increasing too, while they are shedding assets and their NAV supposedly increases. In most cases, Mr Market isn’t given any credit for this, right or wrong. Essentially, these Retail REITs have to paddle hard just to stay put. Sooner or later, the dividends will need to be cut to account for the higher capital needs and lower cap rates.
