Mervyn's and malls

The California-based department store will keep operating during its Chapter 11 reorganization, but there's a good chance some locations will wind up closing. That's another headache for shopping center owners, who are already dealing with some of their tenants either going out of business or retrenching. Retail vacancy rates were up in eight major California markets (the Inland Empire was the hardest-hit area in Socal). From the LAT:

The increase reflects the housing downturn, said John Husing, an Inland Empire-based economist. From 2003 to 2005, as the housing market gathered steam, 80,000 people were migrating inland from the coast annually, and retailers were hot on their heels, Husing said. Last year, as real estate turned, the migration slowed to 35,000. Many new buyers were forced to abandon their homes because they couldn't afford the payments. "Retail doesn't recover until housing recovers, and housing isn't going to recover until you cut off the flow of foreclosures," Husing said. "And when is that going to recover? Nobody knows for sure."

The Santa Monica-based shopping mall owner Macerich could have an especially tough time because it bought 43 Mervyn's stores last December for $430 million. That includes stores in 13 of its malls. The idea was to resell many of those properties to other shopping center owners, but with malls starting to empty out the process could take longer and result in discounts. "Finding tenants to occupy the space could be difficult," wrote Green Street Advisors analyst Jim Sullivan. Complicating the process is that the typical Mervyn's is 65,000 to 85,000 square feet, which is kind of an in-between space for a mall. Additional stories from the WSJ and CoStar.