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Bon-Ton’s Liquidation Raises Default Risk on $1B in CMBS Loans
Morningstar Credit Ratings’ latest CMBS Alert details roughly $1.01 billion of loans in 34 commercial mortgage-backed securities (CMBS) that have significantly elevated risk of default or further deterioration in value, following liquidators gaining control of Bon-Ton’s assets in an auction last month. Of particular concern are nine properties, which back $601.6 million in 11 CMBS loans, where Bon-Ton’s departure is likely to cause even more distress because of the loss of multiple anchor tenants.
Although Morningstar points out mall owners such as Simon Property Group, Macerich, and GGP have the capacity to invest in redeveloping properties, the latest Bon-Ton challenge may lead to lower-quality malls in poor locations being divested in order to focus on higher-quality properties. Morningstar believes mall owners could have opportunities to reuse or redevelop vacant boxes in stronger markets, while stores in secondary locations may struggle to find new tenants.
The easiest way Morningstar suggests repurposing Bon-Ton’s spaces would be to lease them to other department stores. However, that may prove to be problematic since none of the major U.S. department stores are looking to grow right now. Ultimately, property owners may be forced to break down vacant anchor stores into smaller spaces, or bring in nontraditional tenants like charter schools, offices, or surgical centers.
For comments, questions or concerns, please contact Dennis Kaiser
