Market Commentary: Mall-Contents

by Gayl Mileszko


The Galleria Mall in White Plains was a poster child for 1980 urban renewal efforts, the ultimate teen hangout, a great free fitness plan for powerwalking seniors, and the ultimate one-stop holiday shopping mecca for countless New Yorkers. It was the first of three gallerias to open in the country and, on opening day, an estimated 150,000 people jammed in to see all the bounty on display. At one point it was said to be the most profitable mall in the country. Anchored over time by different stores including Stern’s, Macy’s Sears, the center was designed to house 150 smaller shops, 22 restaurants and two movie theaters. Along with the garage, it took up about 20 acres of the city’s downtown area and featured salons, banks, jewelry stores, shoe repair, opticians, dentists, ear-piercing kiosks, gyms, arcades, and places where everyone wanted to shop and eat: The Gap, Claire’s, Herman’s Sporting Goods, Radio Shack, Barnes & Noble, Sunglass Hut, Benetton, Sam Goody, Spencer’s Gifts, Payless, Bath and Body Works, Lens Crafters, and the food court with Sbarro, Cinnabon, Auntie Anne’s, and Baskin Robbins.

Popular American Institutions for 50 Years

Over time, this Westchester County mall, went the way of hundreds of big, enclosed malls across the country as big box stores came to prefer freestanding buildings, and shoppers short on time and money moved to close-by stores, strip malls and online sites. By 2008, Newsweek declared the indoor mall – “the most quintessential of American institutions” – moribund, and yet the Galleria hung on for another fifteen years, battling competition from two other nearby malls, slowly losing tenants and patrons, until the pandemic shuttered most of its remaining boutiques. The property closed for good on March 31.

Transformations and Attractions

The mammoth space that served the White Plains community for 43 years is once again proposed for redevelopment with lots of input from elected officials and the general public. The mall owners, Pacific Retail Capital Partners and Aareal Bank of Wiesbaden, Germany, have partnered with others to propose a new mixed-use plan for the site. It is near the city’s major transit hub and said to be smack in the middle of a Qualified Opportunity Zone, so possibilities abound for this and hundreds of old malls like it. Changes in the retail climate have caused the number of mega shopping destinations to shrink from 2,500 locations in the 1980’s to about 600, and that number is expected to whittle down to about 150 over the next decade. The survivors appear to be those with luxury brands, dining and entertainment options, and lots of good parking. The Mall of America in Bloomington, Minnesota, the nation’s largest with 520 stores, 50 restaurants and multiple attractions, boasts of being one of the most popular destinations in the country.  American Dream Miami, scheduled to be the largest mall in North America, is looking to open in 2026. The American Dream Meadowlands retail, dining, and entertainment complex in New Jersey with a theme park, water park, and ski resort has one of the most lengthy, complicated and expensive histories. It opened in phases starting in 2019 and its future is still unfolding.

Conversions Take Time

Some older malls and big box stores have successfully converted into shop-work-live environments.  In fact, the former White Plains Mall, a Galleria competitor for decades, broke ground on a $650 million mixed use residential and commercial project called Hamilton Green in December.  But white elephants — abandoned, dead or “zombie” malls — have presented considerable challenges to hundreds of urban and suburban planners. Websites, video tours and Instagram photos document many of the ones too expensive to convert or even to knock down.  According to Green Street, a commercial real-estate analytics firm about one-fifth of the malls that have fully closed since 1992 remain standing without a redevelopment plan in place.  Sponsors, developers and community representatives all point out that none of this is easy and none happens quickly.  Acquiring the property often involves protracted negotiations with multiple parties having complicated ownership structures. Construction costs at a time of high inflation, high interest rates, and material shortages make some projects cost prohibitive at this time. Architects are easily vexed by hard-to-retrofit features and the lack of natural light. It can take years of marketing to the citizenry as well as numerous hearings and appeals to obtain zoning approvals, payment-in-lieu-of-taxes agreements, bond authorizations, and/or tax incentives with local and state officials.

Affordable and Senior Housing Conversion Success Stories

Several old shopping malls are nevertheless being converted to affordable housing and/or senior housing. Examples abound in Maryland, Colorado, New Jersey, Wisconsin.  The oldest shopping mall in the U.S., the Arcade Mall in the heart of the city in Providence, Rhode Island, was converted in 2015 to 48 tiny, affordable studio and 1-bedroom apartments on the top floor with tiny retail shops on the ground floor. The old Grand Avenue Mall in downtown Milwaukee has been turned into market rate apartments named Plankinton Clover. An old Sears store at the former Irondequoit Mall near Rochester, New York has successfully been converted into a 157-unit affordable senior housing community with 78 units offering supportive services named Skyview Park.  Aljoya Thornton Place is a 143- residence retirement community in Seattle, built on the old Northgate Mall parking lot.  Forbes recently reported that plans for new independent living, assisted living and memory care communities to open in 2024 at Sophia at Fox Valley on the site of the old Fox Valley Mall in Aurora, Illinois, and Sophia at Hawthorn Mall at the redeveloped Hawthorn Mall in Vernon Hills, Illinois.

Current Conversions in Financial Market Sentiment

In the financial markets at present, investors are converting from positions of fear. After seeing so many signs in the economic data and Treasury yield curve for the past year indicating that our country is heading into recession, many moved into defensive positions and positioned portfolios for an economic downturn. But no recession has materialized, at least not one that we recognize, or have experienced before. Employment, while on a downward trend, is nevertheless very strong and unemployment is only 3.6%. ADP private payrolls for the last week came in nearly twice higher than expected.  Prices on many products remain elevated, but the latest government inflation data show that we are up 3% year-over-year, down from 9.1% last June. Credit card debt, approaching an all-time high of $1 trillion continues to prop up consumer demand and purchasing.  Mortgage rates are high at 7.08% but the hope is that this month we will be at near or at peak interest rates. We believe all the chatter from Federal Reserve officials that another 25-basis point increase is coming, but we have had enough. So, one indicator of how investor thinking has changed is the CNN Fear & Greed Index which is currently pointing to “extreme greed” as what is driving the financial markets at the current time, far from the “fear” indicator that drove buying and selling just one year ago. Many investors have moved back into risk assets and away from havens including Treasuries and municipals. Money market funds have seen $8.3 billion of outflows in the last 4 weeks. 

Equity and Commodity Markets

Volatility in the equity markets is well below the 2023 average and stock market indices are all up. The Dow is at 34,530, up 123 points. The S&P 500 at the start of second quarter earnings season stands at 4,484, up 34 points. The Nasdaq at 13,948 has gained 1.2% and the Russell 2000 at 1,935 is 2.5% higher. Oil prices at $75.70 a barrel have moved more than 7% higher since the start of the month, all related to Russian supply. Natural gas at $2.58/mmbtu is down 8%. Silver prices at $23.91 an ounce is 5% higher and Bitcoin at $30,767 is up slightly.

Bond Markets

Bond market volatility is 15% higher in the first seven trading days of July. At this writing, the peak of the Treasury yield curve is the 6-month maturity at 5.48%.  The short-and long ends of the curve have reversed or been inverted for 13 months now. Since the start of the second half, the 2-year Treasury yield at 4.73% has fallen 16 basis points, the 10-year at 3.88% is 5 basis points higher, and the 30-year at 3.99% has risen 13 basis points. The Baa corporate bond index yield at 6.41% is up 14 basis points in July. On the tax-exempt side, yields have been askew since last December 9. The 1-year at 3.09% currently yields more than the 14-year at 3.05%.  Prices have fallen across the board this month. The 2-year AAA municipal general obligation yield at 2.97% is 4 basis points higher, the 10-year at 2.64% is up 8 basis points, and the 30-year yield at 3.56% has risen 7 basis points. The 7-day SIFMA index yield is 3.23, down from 4.01% at the end of June.

Exchange Traded Funds Gain Popularity

In the 1960’s an average of at least three new shopping centers opened every single day in America, and by 1975, malls and shopping centers accounted for a third of all U.S. retail sales. In the financial markets, it is interesting to note that in the last two years an average of 1.81 U.S. exchange traded funds have opened every day. ETFs were first introduced in the 1990’s with the S&P 500 SPDR, first out of the box or America in 1993. There are now approximately 1,319 U.S. equity ETFs with $4.4 trillion of assets and 464 fixed income ETFs with $1.2 trillion of assets. With respect to municipal ETFs, assets have grown 194% since 2018, and they have added a total of $109 billion over the past 15 years, including $1 billion last month alone. Twenty-three new muni ETFs have been launched since 2021. 

Market Movers This Week

This week, while keeping an eye on announcements from the NATO summit underway in Lithuania and the G20 Finance Ministers meeting in India, traders will be watching the outcome of 10 Treasury auctions. We will see key data on inventories, inflation, import and export prices, the Beige book, and consumer sentiment. Some market observers have been worried about the transition from using rates reliant upon the London Interbank Offer Rate, or Libor, to SOFR. That happened as of June 30. So far there appear to be no major issues in the loan and derivatives markets. So attention turns back to the central banks and Washington. Eight Fed officials are on the speaking rounds this week, and Congress is back in session with headliner hearings and several major votes. Investors will also tune into earnings reports from 3 major banks, Conagra, Delta, Pepsico, and United Healthcare. Approximately $20 billion of investment grade corporate issues are planned for sale in the primary market, and analysts will be watching the weekly fund flows. Last week, investment grade corporate bond funds took in $1.62 billion while high yield corporate funds saw $283 million of outflows.

Shopping for Munis

On the municipal bond side, a $7 billion calendar is expected. There are 19 refunding issues totaling $1.28 billion and eight college financings.  We may see one charter school in the market this week but note that issuance in this sector has fallen dramatically versus the last two years. So far this year, primary market sales are only half of what they were in 2022 and 2021. Through June 30, Bloomberg data tally $1.04 billion of par issuance, while the first half of 2022 totaled $2.56 billion and the first six months of 2021 saw $2.01 billion. The senior living side has seen even fewer deals come to market so far this year, with only 11 deals and $383.2 million of combined par. In terms of buyers, institutional appetite has been muted for much of the year with $7.96 billion flowing out of mutual funds and exchange traded funds so far, and bank holdings down 2.3% from 2022. Households have been presenting the most demand for munis in 2023 and they are incentivized to buy even more this month and next as $106.2 billion of principal and interest will hit their accounts by the end of August, available for reinvestment.  As of the close on Friday, non-rated municipal bonds have returned about 4.21% year-to-date. Taxable munis are up 2.84% and investment grade munis have returned 2.43%. So far this year, tax-exempts are outperforming the Treasury, mortgage and high-grade corporate indices.

We invite you to contact your HJ Sims representative this week for more information on topics of interest to you, to share your own gauge of market conditions, to discuss financing and investment options, or review your portfolio. We look forward to being a part of your conversion success story.

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