Could commercial real estate (retail) collapse?

JTH's picture
Rank: Senior Orangutan | 481

With companies like JC Penney and Sears having done progressively worse over the past ten years, a large number of department stores have closed in the past year, with plans for more to close in the near future. Since most malls depend on one or more of these stores to bring in customers, it hurts the overall performance of malls. Thus, an increasing number of hedge funds are betting against commercial loans.

It's no secret retailers and malls have been struggling for years, but it looks like the perfect storm is set to hit them in 2017. Bearish bets against commercial loans jumped 50% year-over-year in February--and with problems piling up for malls, it's no wonder. Around $3.5 billion in retail loans were liquidated in 2016. Investment firm Gapstow Capital said losses on mall loans have been "meaningfully higher than in other areas."

Given that malls and commercial real estate appear to be declining, do you think that they could collapse? If so, how big of an impact would this have on the overall economy?