Last October, Catie McKee, a hedge fund analyst, had been scrutinizing the mortgages on the nation’s malls, and was convinced that some of those malls would default on their loans, the New York Times reported. McKee made her case to Carl Icahn, who had made a similar wager and invited her team to discuss the trade. Nothing would bolster her confidence — and the prospects for her trade — more than if the billionaire and onetime corporate raider backed her up. Both agreed that e-commerce, changing consumer habits and evolving demographics had pummeled all malls to some degree in recent years, but some were far worse off than others. So by betting on their demise, both could profit handsomely — which they did. Icahn, whose hostile takeover of TWA in the 1980s established him as a major dealmaker, has made $1.3 billion on the trade since that meeting. And the investors that made the trade within McKee’s firm, MP Securitized Credit Partners, more than doubled their money. Trapped between the growth of online shopping and the popularity of discount chains, many retailers have struggled to find a foothold in the changing firmament. The nation’s roughly 1,000 shopping malls (excluding strip and outlet malls) have borne the brunt of the problems, with hundreds of them fighting low occupancy and the loss of major stores, known as anchors. The coronavirus pandemic, which prompted stay-at-home orders, increased the financial strain on malls by choking off much-needed foot traffic and cash flow. “The pandemic sped up the rate of demise for CMBX 6 malls by being the final straw for a lot of struggling retailers and mall owners,” McKee said, referring to the obscure real estate index that she bet against because of its exposure to troubled malls. The private equity fund Apollo Global Management, which runs an internal hedge fund that focuses on credit investing, made more than $100 million shorting the CMBX 6 and other commercial real estate securities — one of the fund’s most successful trades of the year. Jason Mudrick, whose New York hedge fund, Mudrick Capital, focuses on distressed investments, estimated that he had made the same amount. So did Scott Burg, chief investment officer at Deer Park Road, a fund in Steamboat Springs, Colo. So far this year, 16 percent of all retail industry loans are delinquent, according to statistics tracked by the data firm Trepp. Major retailers, including J.C. Penney, Neiman Marcus and Modell’s Sporting Goods, have filed for bankruptcy, and new tenant demand for mall space has never been weaker, according to an analysis of national malls by the advisory firm Green Street.
