More Retail Meltdown

In The Coming Commercial Real Estate Crisis, the author highlights a failed mall in Minnesota which was sold for nearly 1/10th of its "book value." To rebuild this mall today, it would probably cost around $130 sf for a basic buildout. This raises a major red flag: the cost of existing commercial real estate assets is collapsing in most markets, yet the cost to build them has continued to rise since it cratered in 2008 and 2009. The inflation needed to overcome the staggering deflationary forces and force construction costs to rise in the worst real estate environment ever is nothing short of awesome and is not limited to COPPER, gypsum, cement and steel...it includes every good and service used by every man, woman and child on earth. When this inflation is unchained from the deflationary collapse it will be smothering.

As we have discussed at length, retail bankruptcies/closures contribute to a vicious, momentum building cycle which can empty a mall in 6-12 months. In 2008, national retailers were victimized most as we saw Circuit City, Linens and others go down. Q3-4 2009 and 2010 have been dominated by local and regional failures like Myer Emco in the D.C. region.

The article below discussed rental breaks for retailers which are seldom agreed upon with landlords. Any national or regional ownership group will flat out reject any loss in income and elect to hire an attorney to take it to the retailer for all they are worth.

Wise, local owners will from time to time give retailers a break to keep the cash flow steady and avoid legal fees, down time, tenant improvement dollars and commissions.

Retail Tenants Appeal For Rent Relief

Retail sales plunged 6.2% in 2009 from the previous year, the U.S. Commerce Department reports. That represents the greatest decline since the government began recording annual sales in 1992, and the figure eclipses the 0.5% drop in 2008.