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Discount Diva: Report spells more bad news for McKinley Mall

As a shopper, the quiet corridors and darkened storefronts probably told you all you needed to know about how the McKinley Mall is doing.

But new data out this week will give you numbers to back up what you likely suspected: McKinley Mall is in deep, deep trouble.

The mall was dealt a blow Monday when Sears, its second-to-last department store anchor, declared bankruptcy. Though the McKinley Mall location dodged a round of store closures announced in the bankruptcy filing, making it the last Sears store in the Buffalo Niagara market after the Eastern Hills Mall store closes, it won’t mean a thing if the whole Sears empire ends up going under.

And now, more bad news has come to light.

Appraised at $56.5 million in 2013, the mall’s valuation was just slashed by 75 percent – making it worth just $15 million as of October, according to Trepp LLC, a commercial mortgage data real estate firm.

That’s bad. Very bad.

Given that the mall serves as collateral for a $35 million loan that has been delinquent since June, you might say the Hamburg mall is up a creek without a paddle.

The mall’s occupancy rate was listed at 80 percent as of March. That’s a 20 percent vacancy rate, and that was before the mall lost Bon-Ton, which accounts for 13.4 percent of the mall’s square footage.

The national vacancy rate for regional malls like McKinley is 9.1 percent, and that’s considered strikingly high. McKinley’s rate is roughly twice that.

McKinley’s next biggest tenants are struggling, too: Sears, with 20.1 percent of the mall’s net rentable area, and J.C. Penney, with 14.6 percent. Again, Sears’ lease expires in 2020, but the company itself could expire sooner.

Discount Diva: Take Sears if you must, but please leave my J.C. Penney

The Gap closed in February, and Ulta Beauty fled the same month for greener pastures at Quaker Crossing in Orchard Park. Smaller inline tenants have also left the mall.

Old Navy is paying reduced rent, according to Morningstar Credit Ratings, because of “co-tenancy clauses” that allow mall tenants to renegotiate or terminate their leases after anchors close.

“The Bon-Ton closure will add more co-tenancy and contract renegotiation risk to the property,” said Steve Jellinek, vice president of commercial mortgage backed securities research at Morningstar Credit Ratings.

Those stores that have renegotiated better lease terms have already brought down the mall’s cash flow by 19 percent.

And if Sears were to close? Forget it.

“Losing a third anchor would just speed up the downward spiral because it’s difficult to justify investing additional capital with almost no upside,” Jellinek said.

For Southtowners, the effect of losing the McKinley Mall cannot be overstated. Aside from Quaker Crossing, the mall is the only major retail center in the region south of the Walden Galleria.

“That’s not to say that a new owner can’t turn it around. Maybe find nontraditional tenants to fill the empty boxes,” he said. “It just takes a new investor at the right price with fresh ideas.”

Discount Diva: No, Bon-Ton is not back. Not really.