Wed. Jan 19th, 2022

Igal Namdar and Elliot Nassim first teamed up a decade ago to buy troubled malls in the US.

They are now ranked among the largest buyers of cash from the nation’s fortune shopping malls. The pandemic has made it even harder for mall owners who are already struggling to keep up with mortgage payments, prompting several major players to throw in the towel on troubled and more likely properties.

The duo, through Namdar Realty Group and Mason Asset Management, of Great Neck, Long Island, currently has about 60 million square feet of mall space, including approximately 100 outdoor properties and 65 malls. closed. This type of imprint unites them with Macerich Co. MAC,
-4.32%
and other major mall owners with a coast-to-coast reach.

Instead of U.S. shareholders and quarterly reports, the team keeps things simple: Namdar focuses on property management. Nassim is in charge of leasing and asset management. Namdar, through Namco Realty Ltd, also a few years ago raised millions in Israel by selling bonds tied to its properties.

But what really sets them apart is a steady stream of cash offers to sellers who want to get out. In return, they want a discount.

“We see a lot of these malls being sold by lenders,” company president Igal Namdar said in an interview with MarketWatch. “And closing security is an important thing for them.”

“We see that being able to close everything in cash often gets a discount from where you market it,” he said. “This is where we make our money.”

Several market experts noted that Nadmar and Nassim were the largest buyers in the sector. “I would say we probably bid for more malls than any other company,” Namdar said.

Bloomberg News recently reported on legal issues arising from the “bottom feeder” strategy, while setting Namdar’s personal net worth at approximately $ 2 billion.

Namdar declined to comment on this equity estimate when MarketWatch asked him to. “While we can’t comment on active litigation issues, we take any lawsuit against our team very seriously,” the team told MarketWatch. “It is always our goal to add value to our properties and we are diligent in our efforts to solve any maintenance or management issues that come to our attention.”

In short, yours is a bet for any mall to make a profit if the price paid is less than the cash that comes from tenant leases. If some old malls can be used in new and creative ways, such as the “mini-casino” plan of an old Macy’s store in Namdar-owned Nittany Mall at State College, Penn, better.

Billions on the line

Financial problems related to troubled American malls already reach billions.

According to a list compiled by Bill Petersen, co-founder of CREDiQ, a debt made around $ 4.6 billion of US mall debt with possible foreclosure actions, liquidations or real estate (REO) wealth analysis company .

A REO property is one in which a property is owned by a lender because it has not been sold at a foreclosure auction after the borrower has defaulted on the mortgage.

As many properties remain in limbo, the worst of the crisis is likely to come for investors in mall mortgages.

According to research firm and data tracker Trepp, approximately $ 3 billion in commercial mortgages have been identified in commercial mortgage bonds at risk of being returned to lenders.

“I think some mall owners will be confused with the help of loan modifications and maybe some peripheral debt forgiveness,” said Manus Clancy, Trepp’s chief executive and chief research officer. “Others will be returned to lenders through an unanswered or confronted foreclosure process.”

The Drano for submarine malls

Much has been written about the death of the American mall, recently included by the New York Times in an article pointing out the “deep nostalgia” many people have for local malls, even as many owners have been struggling for years to keep the lights on. .

Morgan Stanley’s team of retail analysts predicted last October that the pandemic could force 35% of U.S. malls to close permanently. A trillion-dollar fiscal and monetary stimulus from the federal government and the Federal Reserve helped curb the carnage, with only 13 malls so far this year marketing new owners.

Namdar and Nassim could help unblock the backlog of submarine mall properties.

In part, this is because financiers could continue to go down for many lower-quality mall owners. According to Morgan Stanley, regional malls saw net operating revenue from the same store fall by an average of 26.1% less in the first quarter of a year ago.

Shopping malls are seeing net operating income fall

Morgan Stanley Research

The lifting of pandemic restrictions in recent months has been a boon for the actions of major traders such as Simon Property Group SPG,
-2.18%
and Kimco Realty Corp. KIM,
-1.25%,
both increased by more than 40% over the year so far. This compares to an 18.4% gain for the S&P 500 Index SPX,
-0.71%
for the year beginning Tuesday, while the Dow Jones Industrial Average DJIA,
-0.79%
rose 15.4%.

The increase in retail REIT shares occurs despite the backdrop of major challenges, not only due to falling retail rents and employment levels, but also due to the huge number of tenant leases. which expires over the next three or four years.

That’s when Morgan Stanley’s team estimates that 50% of mall-based special leases, including those from American Eagle Outfitters Inc. AEO,
-3.89%,
the GPS Gap Inc,
-4.43%.
and others, come to renewal.

The pandemic is not over yet, including in the United States, where hospitalizations for COVID have been on the rise, despite widespread availability of vaccines for adults, raising concerns about recovery.

The government’s release on Tuesday in July of U.S. retail sales showed a sharp drop of 1.1% monthly, underscoring concerns related to the delta variant of the coronavirus, but also a shift in “goods” priorities. to services, ”James Knightley, international chief economist at ING, wrote in comments sent by email.

Namdar and Nassim properties began to pick up after the 2008 financial crisis were “C” or “D” malls, categories, such as exam grades, that point to the possibility of improving or almost failing. Lately, the team has been advancing in quality.

“We are a company with a very low leverage. And we are always looking for opportunities to buy better assets than when we started, ”Namdar told MarketWatch. “As we build our portfolio, we want to constantly improve quality with better assets.”

No one doubts that the best American malls will survive (and even thrive) once the pandemic carnage is over, said Daniel McNamara, director of MP Securitized Credit Partners. But he still sees the problem as an excess of debt in lower-quality properties financed years ago, when mall valuations were set at much higher levels.

“Class A operators are doing very well,” McNamara told MarketWatch. “But almost anything below the ‘Class A’, there really has been no offer, except for the Namdar of the world. And it has to be all cash.”

Like billionaire Carl Icahn, McNamara’s hedge fund has opted for the debt of older malls to go bad.

The BofA Global research team said recently, “while online shopping had already cannibalized the detail of bricks and mortar, the pain many retailers felt before Covid worsened during the pandemic,” in a weekly note.

Major mall owners, including Simon Property, Starwood Capital, Brookfield Asset Management and others, have reacted to the upheaval by handing over the keys to lenders of some properties, rather than “throwing good money” after bad ones.

Read: Brookfield to hand over keys to three malls, potentially more as it goes private in a $ 6.5 billion deal

The Green Street commercial property price index has been trading below 18% since before the pandemic.

Namdar’s team hopes the higher quality malls will continue to shake.

“During the pandemic, there have been fewer offers,” said Namdar, who added that most lenders have been working with their borrowers, but also that many have not been “willing to retire yet.”

“But we are told that in the next year or 18 months, there will be a lot of deals in the market,” he said.

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