Major Mall Operator Washington Prime Group Files For Chapter 11 Bankruptcy

Late Sunday evening, Washington Prime Group Inc., a mall owner with more than 100 shopping centers nationwide, filed for Chapter 11 bankruptcy protection, citing the virus pandemic paralyzed their business, according to a company press release. 

According to documents filed in the U.S. Bankruptcy Court for the Southern District of Texas, the Ohio-based mall operator was spun off from the largest mall operator, Simon Property Group, in 2014. The bankrupted company currently has 102 malls and strip centers across the country. 

Washington Prime’s Property Portfolio 

Washington Prime will continue to operate after striking a restructuring deal with creditors, led by SVPGlobal, that holds about 73% of the company’s secured corporate debt and 67% of the principal amount outstanding of the company’s unsecured notes. 

The company has assets at approximately $4 billion and debt of almost $3.5 billion, acquired a $100 million debtor-in-possession loan that will support operations in the intermediate term. 

“The COVID-19 pandemic has created significant challenges for many companies, including Washington Prime Group, making a Chapter 11 filing necessary to reduce the Company’s outstanding indebtedness,” Washington Prime Group wrote in a press release.

Several retailers, such as Christopher & Banks, Guitar Center, New York & Company, J.C. Penney, Stein Mart, Sur La Table, Ascena Retail Group, and Tuesday Morning, have filed for bankruptcies over the past year and resulted in store closings were primarily tenants at some of the mall operator’s properties. 

Lou Conforti, CEO and director of Washington Prime Group, said, “The Company’s financial restructuring will enable WPG to right size its balance sheet and position the company for success going forward. During the financial restructuring, we will continue to work toward maximizing the value of our assets and our operating infrastructure. The company expects operations to continue in the ordinary course for the benefit of our guests, tenants, vendors, stakeholders and colleagues.”

Malls were struggling well before the pandemic. Weeks ago, we reminded readers about our 2017 call, one of the first to bring the market’s attention to what has subsequently been dubbed “Big Short 2.0” as we reported that “Mega-Bears Smell Blood As Mall REITs Tumble.”

 “Wall Street speculators are zeroing in on the next U.S. credit crisis: the mall…. It’s no secret many mall complexes have been struggling for years as Americans do more of their shopping online. But now, they’re catching the eye of hedge-fund types who think some may soon buckle under their debts, much the way many homeowners did nearly a decade ago.”

Then in late 2019, none other than iconic investor Carl Icahn jumped into the big short 2.0, shorting America’s malls by going long default risk via CMBX, or otherwise shorting the CMBS.

… and despite the trillions in Fed liquidity to prop up every asset class in the world (especially credit), the CMBS market has failed to get excited. 

We reported weeks ago that a loan tied to a beleaguered mall outside of Las Vegas realized a loss of 120% after the shopping center sold for about the same price as a condo.

According to Bank of America Corp, the loan, which had a current balance of $62.2 million, was written entirely down after the Prizm Outlets were liquidated for just over $400,000. The Prizm Outlets had been valued as high as $28.2 million less than a year ago, and $125 million in 2012 when the loans were bundled into commercial mortgage-backed security.

When accounting for $11.5 million in fees and reimbursements owed to the master servicer for advances made, the total realized loss came to $74 million.

So maybe the onslaughter of malls has begun, the second one in weeks, as the Fed signals tapering its balance sheet is on the horizon.