An Indicator Of Things To Come

Implications: Whenever a troubled shopping center loses an anchor store there are far more repercussions than most hedgefund analysts realize. Steve & Barry's which until recently has been the replacement anchor of choice for troubled malls, is now being seen as the first major anchor failure that could sound the death knell of many of the 100 troubled mall properties it has announced it will be vacating as the result of its' recent bankruptcy. Everyone of these shopping centers have had a serious shock when the original department store anchor vacated the premises. As we now know, these shopping center owners quickly chased down Steve & Barry's and shoved millions of dollars into their pockets to "bribe" them to open a replacement store in the vacant anchor position. Now the malls are again facing a major vacancy with NO REPLACEMENT ON THE HORIZON and very little incentive to "buy" another anchor.

Analysis: Using the Chicago experience as an indicator of the overall problem plaguing the less successful "troubled" malls around the country, it is reasonable to predict an emerging pattern.

Originally Steve & Barry's opened stores in 12 of the least successful centers in metropolitan Chicago. Now they are exiting 5 of those centers.

Every hedge fund analyst interested in Mall REITs should immediately analyze which mall REITs own which of these troubled centers and what it will do to their 4Q and beyond, FFO. It is my firm opinion that this analysis will reveal the real dangers in owning those REITs with the largest percentage of troubled properties because they will certainly be the first to feel the impact of the recession and the last to feel the effects ,(if any) of the recovery in 2010.