Wall Street's next big short: malls

Crain's Chicago Business reports:

Wall Street speculators are zeroing in on the next U.S. credit crisis: the mall.

It's no secret many mall complexes have been struggling for years as Americans do more of their shopping online. But now, they're catching the eye of hedge-fund types who think some may soon buckle under their debts, much the way many homeowners did nearly a decade ago.

Like the run-up to the housing debacle, a small but growing group of firms are positioning to profit from a collapse that could spur a wave of defaults. Their target: securities backed not by subprime mortgages, but by loans taken out by beleaguered mall and shopping center operators. With bad news piling up for anchor chains like Macy's and J.C. Penney, bearish bets against commercial mortgage-backed securities are growing.

In recent weeks, firms such as Alder Hill Management, an outfit started by protégés of hedge-fund billionaire David Tepper, have ramped up wagers against the bonds, which have held up far better than the shares of beaten-down retailers. By one measure, short positions on two of the riskiest slices of CMBS surged to $5.3 billion last month—a 50 percent jump from a year ago.

"Loss severities on mall loans have been meaningfully higher than other areas," said Michael Yannell, head of research at Gapstow Capital Partners, which invests in hedge funds that specialize in structured credit.

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