According to a recent Bloomberg News report, hedge funds have been betting against the failing shopping mall industry, expecting to earn large profits when loans to mall operators eventually fall short. According to Bloomberg News, “Investors have been betting on indexes that track baskets of commercial mortgages with outsize exposure to malls across the country. Through buying and selling credit default swaps, they’re effectively wagering on whether—or when—the underlying loans will go bust and which way the index will move.”

In other words, hedge funds are predicting that shopping malls will soon go bust, similarly to how the hedge funds in the 2010 book and 2015 biopic film The Big Short predicted the financial crisis of 2008 and bet against housing mortgages to reap large rewards. In the current situation reported by Bloomberg News, hedge funds are anticipating earning huge profits through betting against the commercial mortgages of shopping malls. However, the difference here is that the hedge funds’ cost to maintain their loans to mall operators is growing as the shopping mall industry continues to stay afloat.

As consumers continue to shop in malls and retailers continue to lease spaces, mall operators are able to stay on top of their loans, paying dues to the hedge funds.

“Mall owners are living in a highly competitive environment with the growth of eCommerce,” reported Sunando Banerjee of Openbravo last month. “However, digital transformation, omnichannel and the adoption of AI and cognitive technologies will help them not only to sustain, but also provide higher value to both tenants and shoppers.”

As Openbravo’s report details, malls are surviving in the digital age because shoppers are looking for a blend of digital retail with in-store sales. Therefore, shopping malls are becoming revered by consumers for the retail experience they allow, a contrast to the benefits provided by digital commerce. As the retail market changes, malls are not becoming extinct, rather they adapt to consumer needs and remain relevant.

 

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