Malls Are Here to Stay, Says Green Street Consultant

Phil Owens

Phil Owens, managing director with Green Street’s Advisory Group, joined REIT.com for a video interview at REITWeek 2017: NAREIT’s Investor Forum at the New York Hilton Midtown.

Owens discussed some of the latest developments in the retail real estate sector. According to Owens, some investment managers view real estate as area where they can execute on trades spurred by the changes taking place in the retail business.

“Malls are an area where people are trying to really dig in to figure out how they can make a play,” Owens said. He noted that some investors are exploring which malls are exposed to different retailers. Additionally, he said they’re studying occupancy costs to find out how vacancies could affect the performance of different malls.

Another area of interest is commercial mortgage-backed securities (CMBS) tied to malls, Owens said: “There’s a treasure trove of information in those CMBS filings—if you can put the manpower into extracting it.”

Owens also pointed out that mall REIT share prices are priced at “significant” discounts relative to underlying value, which can offer insight to investors looking at trading on the space.

Regarding the quality of mall REITs’ assets, Owens said most REITs own properties on the upper end of the spectrum. To a degree, that protects their portfolios from the threats posed by shifts in retailing, according to Owens.

“Most players are consistent in their view that the weaker malls are going to continue to face ongoing challenges,” he said.

The top 200 malls in the country account for roughly 60 percent of the sector’s value, according to Owens. He noted that those particular malls are performing well, as seen in their operating statistics. However, Owens did point out that with retailers’ credit profiles weakening on the whole, some investors believe high-end malls could still face problems in the future.

“The divergence in points of view at the high-quality mall space is pretty pronounced, but I will say that I think we’re seeing some strength in the high-quality malls,” Owens said. “Going forward, we’re going to continue to see high-quality mall operators adapt in an effective way.”

In the end, malls are here to stay, according to Owens. “High-quality malls are going to be around, and they’re going to look very different from the way they look today,” he said.