Are Malls And Real Estate Owners In Trouble? The Bond Market Says Yes

According to the Wall Street Journal, the total value of bonds backed by personal, corporate and real-estate loans plummeted $98 billion from the first six months of 2015 as investors fled riskier types of bonds.

The drop in bonds is viewed as a negative for shopping mall owners and businesses that need to refinance their debt. After all, the dollar value of the bonds is equivalent to the total volume of loans that Fifth Third Bancorp, one of the largest regional banks, holds on its balance sheets.

The commercial mortgage-backed securities (CMBS) sector is expected to be hard hit. The Wall Street Journal noted that at $31 billion so far this year, bond issuance is now 44 percent lower than it was a year ago. Thousands of real-estate owners who traditionally tapped the debt market will now need to find alternatives sources of funding when their debts mature this year and next.

Related Link: Traditional Retail Struggles To Convince Shoppers To Visit Physical Stores

Lenders Backing Out Of Deals

The Wall Street Journal offered an example of a mall owner scrambling to secure financing.

The owner of a shopping mall in Texas, whose tenants include TJX Companies Inc TJX and J C Penney Company Inc JCP had $26.5 million in debt that was due in March. The mall owner had to work for several months before it was able to come to terms on a new 10-year loan from a lender called Greystone & Co.

However, Greystone backed out of the deal and cited the uncertainty of the future of traditional malls as shoppers continue moving online.

The mall owner was able to secure a five-year loan from a small Texas bank.