Summary
Taubman Co. is generally considered to be among the "best and brightest" of Mall REITS. If they are acknowledging serious problems with some of their properties, what must this portend for other REITs that have been assembled with far less dominant locations and/or retailers?
Analysis
Although Taubman is among the best of the REITs in terms of its reputation for having the most dominant retailers in some of the best locations in the country, they are among the smallest in terms of numbers of malls in their portfolio. Therefore the failure of two of their most recent undertakings represents a much larger percentage of their portfolio than any of the other top REITs such as Westfeild or Simon.
How should the GLG News reader interpret this latest bit of bad news about the Mall REIT industry? Well for one thing, it is a clear confirmation of what this writer has been forecasting for many months----the recovery has a long way to go before this industry stabilizes. There are many more "shoes to drop" before this thing is over. I would have predicted that Taubman would have been one of the last to be impacted and/or turning projects back to lenders. Now we read about their turning back not only two projects, but two of their newest and most heavily hyped projects.
It is my opinion that this is an early indicator of not only my well discussed prediction of the rapid decline of "C" level malls, but a whole new twist on a far less well understood part of the industry. While I have written many times about the over stored and over malled problem in this country, I have not focused on some of these highly promoted NEW malls as being particularly vulnerable.
Well almost by definition, if we have been over malled for the past 10 years, then we must consider the fact that virtually every mall built during this period was probably unnecessary. These malls then, constitute a new class of vulnerable projects which GLG clients that follow the fortunes of Mall REITs should be watching in addition to "C" level malls and malls with under performing department stores.
As an avid "Taubman watcher" I hereby confess to focusing far too much attention on their stellar collection of first rate department stores when I previously concluded they were among the least vulnerable of the major REITs. After this recent announcement I have reexamined their portfolio and now consider several other of their more recent developments as highly vulnerable for the simple reason that they were located in close proximity to very strong competitors.
While I have not examined the portfolios of any other Mall REITs, I do believe that GLG clients who follow this industry must now also be factoring in the mall's age along with the financial health of their anchor stores.
Kenneth Leonard consults with leading institutions through GLG
Analyses are solely the work of the authors and have not been edited or endorsed by GLG.
