The collapse of Pennsylvania retailer Boscov highlighted how the troubles facing US retailers will also hit investors in the buildings that house them.
Simon Property Group and General Growth Properties, two major real estate investment trusts that between them own six of the malls in which the Boscov’s department stores sit, may struggle to fill the vacant space in a weak retail environment.
There could also be problems for investors who hold Boscov’s debt. Its mortgages on seven of the stores that are closing were packaged up by Bank of America into a commercial mortgage backed security deal.
Boscov’s is late in payments on the $117m in debt, according to Bloomberg data. If it defaults on the loans, owners of the lower classes of bonds will face losses, although Darryl Wheeler, an analyst at Citigroup does not expect them to be major.
In total, Boscov’s has more than $1.53bn in outstanding loans spread through $52.75bn worth of CMBS deals, property data company Realpoint calculates, signalling how wide the company’s problems could spread. It has not announced any other store closures.
Its bankruptcy emphasises the growing problems in retail property, which is expected to be the worst hit property sector outside of residential.