Shoppers casually meandered from store to store, and the shrill shouts of children could be heard echoing through the concourses of the Mall of America.
But these are anything but normal days for the country’s biggest mall. Pandemic-enforced lockdowns, anxiety about spending time in enclosed spaces and souring unemployment are battering the nation’s retailers — and the malls that count on them to lure shoppers.
MOA’s owners have fallen three months behind on the payments for the mall’s $1.4 billion mortgage, the largest delinquent retail loan in the country. Some of the Bloomington mall’s storefronts continue to sit dark, and not all tenants have been able to fully pay their leases.
To make matters more complicated, the mall’s owner — Canadian conglomerate Triple Five Group — risks losing part of its stake in the mall and another large shopping mall it owns in Canada as its American Dream project in New Jersey has been plagued with delays and has yet to fully open.
While most retail experts predict the Mall of America will be able to survive the current crisis, the struggles of the mall, long considered one of the most prized assets in retail, symbolizes the severity of the everyday issues the shopping center must struggle to overcome to stay afloat.
“You wouldn’t expect a mall like the Mall of America to be in trouble because it is so iconic,” said Neil Saunders, managing director of the retail division of analytics company GlobalData. “That’s a mall that provides a much wider reason to visit than just retail. But when there are very heavy mortgages and loans and those loans are reliant on regular cash flow from rent, it’s not really surprising that it unraveled the way that it did.”
The mall closed in mid-March at the same time other retailers around Minnesota and the country shut their doors out of concern and because of state restrictions to stem the spread of the coronavirus.
As MOA was getting ready to reopen in May — a move postponed after George Floyd’s killing in police custody sparked protests and looting — mall representatives confirmed that the mall had been making partial mortgage payments because its revenue had dropped 85% since it closed.
The loan was transferred to special servicing. According to data firm Trepp, MOA’s mortgage was three months delinquent as of last month. Trepp reported the mall submitted a proposal to the special servicer that is now under review. Mall representatives declined to give any details about the servicing process.
The mall reopened about two months ago with around 150 of the mall’s 500 stores open for business. As of this month, about 85% of stores have reopened.
The mall declined to give any updated revenue numbers, but representatives said the number of visitors has continued to grow while the complex has stayed within state guidelines on capacity, with less than 50% of its daily average of more than 100,000 guests.
Mari Litz said she and her family, on a trip from Virginia last week, liked that Nickelodeon Universe was not busy.
“I think it’s actually better because it’s less people,” Litz said after a ride on the Ferris wheel with her 5-year-old daughter.
But Litz also said she had been spooked on a Sunday visit because of how few people were in the mall overall.
“It was almost like a horror story. It was so desolate,” she said.
Kevin Harris of Cottage Grove brought his daughter along with some friends to celebrate her seventh birthday at the Princess and Diva Spa Fun Shop, where they were treated to nail painting, colorful hair and tiaras.
“Instantly her eyes lit up,” Harris said. “The only time we have come to the mall is for the activity for the kids.”
MOA has made changes throughout its 5 million-square-foot property to try to prevent the spread of the coronavirus. Masks are required for everyone over age 5. Hand sanitizer stations are spaced out throughout the mall. The mall also is operating on reduced hours to allow for more cleaning time.
Temperature checks, appointment requirements and capacity restrictions have shoppers waiting outside some stores. Audio messages and wall signs remind people about measures to stay safe.
Nickelodeon Universe capacity is capped at 250 visitors at a time, which it met soon after it first opened last week. Thrill ride operators armed with industrial paint sprayers have to mist handle bars, seats and other areas after each ride. Seating on rides also is spaced out and assigned.
All malls facing struggles
Shopping centers across the country are facing similar struggles with less foot traffic and lower rent collections.
“What we are seeing broadly is that malls, like hotels, are being crushed,” said Manus Clancy, senior managing director at Trepp. “There are tons of examples of malls that have gone delinquent.”
Since the start of the pandemic, the number of delinquent loans has skyrocketed. In the Twin Cities, the owner of Burnsville Center said it would cooperate with foreclosure proceedings for the suburban mall after it missed several loan payments.
Mall chains and department stores such as J.C. Penney, Neiman Marcus and Lord & Taylor have recently filed for bankruptcy. But the trouble at malls is not new.
“Many of the bankruptcies, not all but many that you’ve seen, were companies that COVID-19 and the destruction with it was kind of the tipping point,” said Christina Boni, a senior analyst for Moody’s Investors Service. “It’s like suffocating the patient. All of a sudden you have all of this inventory and you have no way to sell it to anybody.”
One of the few things retailers could put on the back burner was rent payments, with many pushing for deferrals or abatements in recent months while their stores were closed, Boni said.
Complicating the issue
For the Mall of America owner, there is an added complexity to the issues. MOA was used as collateral when Triple Five, which is run by the affluent Ghermezian family, received $1.67 billion in construction loans for its American Dream megamall in East Rutherford, N.J.
The mall’s theme park and ice skating rink opened last October, but not its hundreds of stores. The mall closed in March due to the coronavirus and has yet to reopen.
Recently other problems have emerged, including reports by NJ.com that several contractors have filed construction liens against the property for unpaid work totaling more than $13 million.
Triple Five pledged a 49% stake in the Mall of America for the project and a similar stake in the West Edmonton Mall in Alberta, Canada.
“How much of Mall of America will be sucked into this whirlpool of American Dream problems remains to be seen,” Clancy said.
But there is a possibility that even if MOA comes back strong, the “drag of American Dream” will cause Triple Five to lose some of its ownership in the Bloomington complex, Clancy said. “That’s what makes this situation so complex.”
An MOA spokesman said last week that “the American Dream situation will not impact Triple Five’s majority interest in Mall of America.”
According to loan documents, defaulting on the Mall of America’s loan could also potentially jeopardize the American Dream construction loans.
The risky deal
Nick Egelanian, a retail consultant and shopping center expert, said the Ghermezian family took a “pretty risky bet” cross-collateralizing its biggest assets.
Still, despite the uncertainty surrounding malls, the Ghermezians’ properties are at the top echelon — and their lenders will likely not have much choice but to renegotiate, Egelanian said.
“The lenders need the Ghermezians,” he said. “This is like a one-of-a-kind property. Who is going to come in and operate Disneyland other than Disney?”
The Mall of America — which has continued to add entertainment options in recent years — has plans to expand more with a water park. The Bloomington City Council approved the zoning and entitlements in December, but the pandemic has made the feasibility of the project unclear. The city is continuing to monitor how the pandemic may affect the project.
Ted Gonsior, a senior vice president who specializes in retail at Colliers International Minneapolis-St. Paul, said post-COVID-19 there will still be viability for entertainment mall concepts like the water park.
“We are still social beings,” he said. “These things will continue.”