U.S. mall values rise 13% while $8.7B of mall CMBS sits in special servicing

Valley West Mall, an enclosed center built for 138 retailers outside Des Moines, now has 17 occupants. The 58-acre property sold last month for $11 million, roughly 10% of its 2005 valuation, after four years in receivership, Bisnow reported. Buyer Threshold Capital plans a mixed-use redevelopment that will take at least a decade, the report says.

Ryan Moffatt, West Des Moines' community and economic development director, told Bisnow the redevelopment could keep the mall's deterioration from dragging down the surrounding neighborhood. "We've got to do something to stem the tide here," he said. "Everything from the decline in retail sales to the decline in property tax valuation and the decline in traffic … you can feel it."

Nationwide mall values rose 13% year over year last month, outpacing every other commercial real estate asset class, Green Street reported. Vince Tibone, the firm's head of U.S. industrial and mall research, told Bisnow that about 250 Class-A malls hold 90% of the value of the roughly 900 malls in the country, while about 300 Class-C malls sit in what he described as a wide swath of distress. "A lot of malls are still struggling," he said. "Maybe most of the mall square footage is still in decline."

Morningstar tracks 182 malls backed by 423 CMBS loans with balances totaling nearly $42 billion. Ninety-two of those loans, $8.7 billion in all, are in special servicing — about a fifth of the tracked balance — and 42 loans totaling $3.4 billion are delinquent.

Morningstar managing director David Putro told Bisnow the split should keep widening. "There's still a lot of mall distress out there to be seen," he said. "It's definitely not going backwards." He added that the better malls will capture value increases, and that he expects "a steady transfer of mall loans to special servicing over the next couple years."

Bisnow reports that Macerich and Simon Property Group have stepped back from weak malls while directing capital to stronger ones. Macerich relinquished Santa Monica Place to its lender in 2024 after defaulting on a $300 million loan; the property has since been controlled by receiver Trigild, which brought in Prism Places to manage it. Recent Macerich acquisitions have been in affluent markets including Annapolis, Maryland, and Raleigh, North Carolina.

In August, Wells Fargo moved to foreclose on a $1.3 billion Workspace portfolio; the receiver-run sale was set to produce the comp that appraisals had not. Mall distress is following a comparable pattern: stronger malls reprice upward through ordinary trades, while weaker assets clear through receivership, lender workouts and land-value sales rather than income-based pricing. The $11 million Valley West sale suggests the buyer is underwriting land and redevelopment basis, not in-place retail rent.

The gain describes a sector index; the concentration means the set of stabilized, high-productivity malls is closer to 250 assets than 900. The CMBS numbers describe what happens to the rest. If Putro's forecast holds, the $8.7 billion already in special servicing would be a waypoint rather than a peak.