U.S. shopping center and mall owners can expect to see a lot of vultures circling this year's International Council of Shopping Centers convention in Las Vegas.
Vulture buyers, who thrive on distress, are expected in greater numbers this year looking to swoop down on a strip mall, shopping center or regional mall that might be making money, but whose owner overpaid or cannot find new financing.
I think it's probably the worst mood we've had and I've been doing this for 30 years, said Gerry Mason, managing director of Savills LLC, a division of Savills Plc, the world's third-largest real estate services company.
Attendance at the conference, which runs Sunday through Wednesday, is expected to be down 40 percent to about 30,000, according to the ICSC, reflecting the impact of the faltering U.S. economy on the domestic commercial real estate sector. Tenant sales are down, vacancies are up and rental growth has slowed or in some cases has turned to declines.
The prognosis short term is very poor and I don't think we're going any place upward in a hurry, Mason said. I think the gloom and doom has taken it's toll on the transaction business -- both leasing and capital markets.
Of the 1,300 malls in the country, 200 to 300 are in danger of going out of business or becoming something else, he added.
Last month, General Growth Properties Inc, the second-largest U.S. mall operator filed for bankruptcy protection after it was unable to refinance its maturing loans.
General Growth is going to be the model for the industry here, Mason said.
A lot of commercial real estate buyers who thought they would be able to replace maturing interest-only loans with new debt are expected to fall into the same trap. And the bigger the loan, the less likely a borrower will be able to replace it.
This year, some big exhibitors, such as Simon Property Group Inc and Westfield Group will save a couple of million dollars by opting out of building big house- sized booths. Instead they will be holding meetings in hotel suites and rooms.
But General Growth will have a booth and continue to show that it is open for business.
Retailers continue to pursue and close deals for space at General Growth Properties' strong portfolio of properties, a company spokesman said in an e-mail. In our business, it is important to take advantage of this opportunity to build and maintain relationships.
For a good credit tenant, this year could be a dream.
Instead of clamoring for space, the tenant will likely have the pick of malls and the upper hand negotiating new rents.
He's (the tenant) seeing it at potentially a price that he hasn't seen in 10 years, said Greg Masin, Cushman & Wakefield senior director and a top retail leasing broker. The landlords' willingness to be creative' in their utilization of incentives is going to be a fair question.
Other tenants may ask for a break on rent to help them get through the next few months. In that case, the landlord is going to have to decide if the tenant is worth keeping.
There's no reason to throw rent relief at someone who's not going to be there in 2010 anyway, Masin added.
(Reporting by Ilaina Jonas; Editing by Andre Grenon)