by Vic Patane, SRSRocco Report:
For nearly 25 years I was involved in the creative structuring and issuance of debt. Real estate loans, municipal bonds, economic growth programs, deficit restructuring obligations, fiscal year adjustment bonds, tobacco recovery bonds, and revenue anticipation notes. They all had one thing in common, DEBT.
One particular past endeavor recently punched me in the gut. It’s a long story made short and in a way I really appreciate your attention, its therapeutic. This story could be dissected on so many levels today, let’s just focus on one.
Hudson Valley Mall was financed and constructed in the 1980’s with much fanfare and excitement as I secured the construction and permanent financing for my employer, Chemical Bank. The Mall would serve to “revitalize” the Kingston, New York area with both part time construction and permanent jobs. Task one was for the developer to secure major or anchor tenants which would then draw smaller companies to establish a presence at the Mall. The developer in this case was a master in securing major brand names to anchor its regional mall endeavors. Robert Congel, a well regarded, master developer in the upstate New York region quickly secured Macy’s and Sears and BINGO Chemical was ready with the financing. Next, names like Gap and Spencer Gifts showed up, even a multiplex movie theater. Congel’s team members were often rewarded with very small cash flow percentages in malls they were successful in bringing to market, say a ¼ of 1% of the facilities free cash flow they developed, what’s not to like about that!
Town happy (taxes, jobs), check; developer happy, check; tenants happy, check; Chemical Bank happy, check; and of course lawyers and accounts happy, check.
Fast forward 10 years and Chemical Bank overextended (what an awful term) itself in the real estate arena and was merged with Chase Manhattan (imagine that). At its peak Chemical was the third largest commercial bank in America.
Fast forward to July 2016, the Hudson Valley Mall is in receivership. What a term, it can’t pay its nearly $50,000,000 in debt. US National Bank owns the mortgage and with 20% plus vacancies the property will be put up for sale. Macy’s and Sears have long been gone There is a Dick’s and Best Buy but that’s the conversation you surely have had with a neighbor, “yeah I just buy the stuff at Amazon, it’s cheaper and the UPS guy always shows up”. And a side note the UPS guys and gals are the salt of the earth, their parcel load always increases, their stress level increases, their traffic tolerance increases yet their pay isn’t on that increase list, bless them all!
These malls are debt saturated beasts and they don’t just go away. Its really worse than not going away for as they deteriorate the wrong element is attracted which becomes self perpetuating. Just take a look at the “Not Responsible” sign above. Furthermore, take a gander at the other growth in the area, the “VTPS” syndrome common across America today. Vapor Shops, Tattoo Parlors, Payday Loans, and Second Hand Outlets. I assure you that as a green eared credit officer in the 80’s I was NOT writing about secondhand bargain bin stores in my credit report to senior management.
Perhaps these trends have happened too slowly to alarm most. After all, I can still get that $4.75 Starbucks at the drive through next to the Mall. I do ask myself who pays the taxes, the security fees, the snow removal, the police overtime the insurance? Do I insure for a lesser amount to save money, do I try to make that argument, what is the amount? Enough to cover the debt? To pay for reconstruction? Do insurance premiums ramp higher on deteriorating properties? Who would pay to knock it down if that was the decision? The list of bad questions is endless and Malls across America are limitless.
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