
A Hedge Fund Manager Who’s Shorting America’s Malls - prostoalex
https://www.wsj.com/articles/the-hedge-fund-manager-whos-shorting-americas-malls-1493220669?mod=e2fb
======
chollida1
This is probably easier for most people to read:

[http://www.timelessinvestor.com/2017/04/27/use-index-to-
shor...](http://www.timelessinvestor.com/2017/04/27/use-index-to-short-
americas-malls-from-wsj/)

From the article:

> When Mr. Yip cast a critical eye on regional malls’ debt in 2015, the CMBX 6
> index was trading near its full value, implying a very low probability of
> defaults.

> Mr. Yip visited malls in Connecticut, Louisiana and elsewhere while on work
> trips and vacations, sometime taking his family along with him.

> He would walk three times around each shopping center, studying its mix of
> stores and chatting with store owners, workers and shoppers.

> He noticed some malls seemed poorly maintained and outdated, with a high
> concentration of mom-and-pop shops that, he figured, probably weren’t paying
> much in rent. Locally owned stores such as these have less staying power
> than stores that are part of national retail chains.

The above might be one of the better descriptions of what it can be like to be
a hedge fund manager. Just like Steve Carrell's team in "The Big Short" going
out to Florida and Vegas to talk to house owners and see empty subdivisions
for themselves, the real world job of managing money is alot less sexy than I
think alot of people believe it to be.

It's a lot of work going down avenues that end up as dead ends only to find a
single potential winning idea after 6 months of work.

This guy's team had to get the hypothesis, and then do the leg work, think
things that don't scale, and then even though they think they are right, you
still need to find out a way to short shopping malls.

Before today, I've never heard of the Markit index CMBX 6, I'm pretty sure
they spent alot of their time just finding the correct vehicle to short
shopping malls with and even with this it's not a great one to one match for
their thesis, but its as good as they could get.

As heard at one poker tournament that was filled with mostly hedge fund
employee's. "So many good shorts, so few reliable ways to short them."

~~~
imgabe
Honestly, flying around the country to check out different businesses sounds
like a lot of fun to me.

~~~
scj
I can imagine it'd be like fishing or hunting. Relaxing if you're doing it as
a hobby, potentially frustrating if unsuccessful and your livelihood depends
on it.

~~~
toomuchtodo
It's more like being a journalist with billions of dollars behind you.

~~~
markdown
Or a detective investigating situations in which a favourable outcome means
you make boatloads of money.

------
uptown
It's not just malls. NYC storefronts are emptying out as-well due to high
rents and inflexible landlords, not to mention the convenience of delivery to
apartment, office or pick-up location. This map captures some of those
vacancies.

[http://www.vacantnewyork.com/](http://www.vacantnewyork.com/)

~~~
notlisted
Nice find. It looks like a snapshot from 2015/2016\. Shame there isn't a
Foursquare-like "check-in" app to report new vacancies (or new occupants)
incl. pictures of signs so we can have a live map.

By the way, I've noticed increased turnover and empty storefronts in many
little town centers and strip malls in NJ/NY state, which is bad for residents
and local tax revenue. In my town, people are actually angry at property-
owners who seem to have no qualms about leaving stores empty for many years
and rebuffing people with entrepreneurial ideas. I always wondered how they
benefit from this...

~~~
burntwater
_I always wondered how they benefit from this..._

If it's anything like NYC, they (I'm assuming you mean landlords) benefit
through tax write-off. They can write off the lost income while they wait for
a (hoped for) higher paying tenant.

~~~
fred_is_fred
Unless you know some pretty odd tax laws one cannot write off the act of
refusing to make money. They can write off business expenses which on an empty
building are likely to be not too much different from an occupied one (some
are more, some are less). I think that in some cases waiting for more rent is
right, in other cases it's simply investors (many overseas) using the space to
park assets. They want their money out of GBP or Yuan and in US real estate,
but they don't really want to be landlords. See also pretty much every condo
in Vancouver.

------
rjmunro
Why would Eric Yip be publicising his strategy?

I suggest that it is because by encouraging others to short or sell their
holdings in CBMX 6, after he has already shorted it, the value will go down
and he will gain. People jumping on his bandwagon will gain less, or possibly
even loose after he has cashed his position and the CBMX 6 goes up again. The
mall thing is just a story to make people interested in shorting CBMX 6 - the
malls themselves are not that important to the index.

~~~
dopamean
I think this is a common tactic. You can see it every year at the Sohn
Conference. Notable short sellers like Jim Chanos will give pretty detailed
speeches outlining the case against some market sector or company. You can be
damn sure they already have a huge short position against that company. As
someone looking for a bet to make it's an interesting position to be in. They
make a compelling case but you also know that they are heavily invested in you
getting on the bandwagon.

It's worth noting that publicizing the short might not be entirely about
getting others in on the bet. Very often those speeches are the first time a
larger audience (and the financial media) hear about the troubles in a
particular company. That can help accelerate SEC investigations, customer
churn, etc.

------
sigstoat
the most astonishing thing about this is that he's been able to find anyone
willing to go long on malls in the last 10 years.

i want to read the article about what the hell those people are thinking.

~~~
lithos
This has been an off and on issue on bloomberg radio for a while now. A couple
of weeks ago it stayed a topic for so long (days in a row). That I also find
it surprising.

Sometimes going against the market can be profitable when it falls in your
favor.

Wouldn't be surprised if malls and retail space gets some sort of bailout.
Especially with "X our jobs" (bring back, protect, stole) mantras that have
been panning out really well politically.

~~~
sjg007
They've basically had to innovate (e.g. renovate) or die. A lot of mixed used
as well. This is difficult for colder climates in general.. but you get
outdoor malls with restaurants, shops and apartments/condos and maybe a hotel.
Even then it can be difficult. Just like the large downtown department stores
that went a while ago.

~~~
ghaff
>Even then it can be difficult.

Yep. The other problem is that if you're going to try to make your shopping
mall vaguely mimic Castro Street in Mountain View, in addition to climate
you're going to need Mountain View-like demographics. I can pretty much
guarantee you that the shopping mall nearest to where I live that has JCP and
Sears as two of its anchor stores isn't going to support a boutique hotel and
swanky ethnic restaurants with sidewalk seating.

------
michaelbuckbee
I've been curious as to what will happen the structures themselves. Two
interesting projects:

Mall to Micro-apartments
[https://www.youtube.com/watch?v=HmL2l-bcuUQ](https://www.youtube.com/watch?v=HmL2l-bcuUQ)

Rackspace took over a dead mall for office space
[http://www.nytimes.com/2012/10/31/realestate/commercial/rack...](http://www.nytimes.com/2012/10/31/realestate/commercial/rackspace-
revitalizes-a-defunct-mall-into-an-unorthodox-tech-campus.html)

~~~
voltagex_
Looks like Google "Street View" photographed inside the Rackspace building,
too -
[https://www.google.com/maps/@29.5082497,-98.3933516,3a,75y,1...](https://www.google.com/maps/@29.5082497,-98.3933516,3a,75y,100.68h,88.55t/data=!3m6!1e1!3m4!1sf-
eVsRfyg41GU1cZtwVnQw!2e0!7i13312!8i6656)

------
SirLJ
My 2 cents: the news about retail is old + when the news is out, usually it is
too late to trade... Those that rehash the news constantly, hope it will drive
prices further down from here... Good thing my trading method has nothing to
do with the news cycle...

------
nodesocket
There was a young, incredibly well spoken, and intelligent analyst on Mad
Money last week from JP Morgan (Matthew Boss) who leads retail coverage for
$JPM. He went on to explain that they buy satellite time and point it down at
malls and count the traffic going in and out of the malls to make forecasts.
Individual investors have no chance against that in terms of market data, but
that's fine. Let them over analyze, over trade, and underperform.

EDIT: Just found a link to the full video interview. Worth a watch:

[http://video.cnbc.com/gallery/?video=3000611847](http://video.cnbc.com/gallery/?video=3000611847)

~~~
lukas099
>Let them over analyze, over trade, and underperform.

There was an interesting discussion on HN a week ago about how passive
investors rely on active investors to keep prices in the market in line with
their true value.

~~~
nodesocket
If you look at the long term (10 years) and just bought and held a common
consumer company, the gains are impressive.

    
    
      10 Years
      Amazon - 1,367%
      Apple - 907%
      Google - 265%
      Microsoft - 126%
      Intel - 71%
      Coke - 65%
      Ford - 42%

~~~
jomkr
You've just cherry-picked companies that have performed well, you could easily
have MySpace instead of GOOG.

~~~
nodesocket
Myspace was never public. Go back into your bunker with gold bars.

------
Animats
Sounds like a good move. Malls are dying. The last enclosed mall opened in the
US was in 2006. (Yes, there are some megamall projects underway, such as
American Dream Meadowlands, but they're in trouble.)

See "deadmalls.com".

~~~
ashark
I've been told we went through this cycle before. A lot of older malls were
originally outdoors, in fact, and had roofs added over walkways later.

I don't really get the appeal of newer outdoor mall-like shopping areas.
They're like malls except you get rained on and have to dodge cars and wait at
lights, because of course they don't make the streets pedestrian-first. They
mimic nice old-world town centers except for that key detail of narrow mainly-
pedestrian streets, for some reason, which ruins them. They're still single-
owner, kinda creepy, and restrict which businesses go in. I'm not sure how
they're better.

~~~
Jtsummers
I've been to a couple outdoor malls that were properly laid out/designed.

1) Underground parking under a large portion of the mall.

2) Awnings so that you could stay out of the rain for the most part.

3) No roads through it.

4) Big shops, like department stores, have entrances on multiple sides that
people cut through during bad weather, and often direct access to the
underground parking.

(3) is a lie, there were usually one-way roads that couldn't be used by non-
emergency and non-maintenance vehicles, with access points for delivery mostly
along the perimeters. But where most pedestrians were, there were effectively
no roads.

This kept the space more compact, as well. The one near me now is an example
of a terrible outdoor mall. It's a half-mile walk, largely through empty
space, to get to some of the shops. All parking is above ground. Parking and
roads pervade the whole area. In essence, what they built, was about 10
stripmalls and called it one mall. This, unfortunately, seems to be the more
popular style. Walking around it can feel like frogger sometimes, when the
point of the space is to be relaxing and inviting.

~~~
DoofusOfDeath
These days I buy almost everything, except clothes and groceries, from online
retailers. To get my business, an "outdoor mall" would have to provide a
really compelling benefit.

Perhaps you'll be pleasantly surprised by how quickly the developers of
"outside malls" have to get their act together, in order to survive.

------
nstj
The fund doing the 'shorting' seems to have $96m under management [0] (in
terms familiar to readers that's 0.125% of the net worth of Bezos or the same
amount of cash that Uber burns in a fortnight). It's an interesting story, and
I'm not arguing against the investment thesis, but it seems to be small
potatoes for the WSJ.

[http://www.trackhedgefunds.com/alder-hill-management-
lp](http://www.trackhedgefunds.com/alder-hill-management-lp)

------
WillyOnWheels
Maybe he just read this book and decided to short all malls

[http://www.slate.com/blogs/behold/2014/06/22/seph_lawless_ph...](http://www.slate.com/blogs/behold/2014/06/22/seph_lawless_photographs_abandoned_malls_in_his_book_black_friday.html)

------
frgtpsswrdlame
In case you get caught by the paywall:
[http://www.timelessinvestor.com/2017/04/27/use-index-to-
shor...](http://www.timelessinvestor.com/2017/04/27/use-index-to-short-
americas-malls-from-wsj/)

Anda similar piece in the financial times:
[https://www.ft.com/content/69515384-28f7-11e7-9ec8-168383da4...](https://www.ft.com/content/69515384-28f7-11e7-9ec8-168383da43b7)

------
mifeng
CMBX, as a quote in this articles says, is a blunt instrument. It's a
composite of 20 deals, each of which has a portfolio of different property
types (office, retail, lodging, etc)

A better method is to trade single asset retail CMBS bonds

Alternatively, I think a better

~~~
retube
> A better method is to trade single asset retail CMBS bonds

Could be hard to short though, you got to find someone willing to lend you the
bond, and this paper is not liquid

------
brilliantcode
It's behind a paywall but take these public short position declaration with a
grain of salt - it serves them and their financial positions when it gets
media exposure.

~~~
Arizhel
I agree, but on the face of it it does seem to make sense: there's no shortage
of articles now about the "retail implosion", and lots of stores really are
closing: Macy's, Sears/Kmart, etc. If a mall's anchor stores close, that can
mean the death of the mall because other tenants will pull out (their leases
usually allow this in the case of anchor store closure).

Personally, if I were a hedge fund manager, I'd be really careful with this
and pick carefully which malls (or rather, the companies that own them) I
think are going to fail. The newer, trendy "lifestyle centers" seem to be
doing just fine mostly, and even the places like Macy's are still hanging on
in some places, just not in others. Macy's isn't going out of business any
time soon, but they are downsizing a lot, which means certain locations just
aren't viable any more. Even regular malls are still doing OK in many places,
but that segment of the market is shrinking.

~~~
criddell
I was in a mall earlier this year and went into the big department stores and
looked around (JCP, Macy's, Dillard's, and Sears). It's been many years since
I was in one of those stores and it felt like I had stepped out of a time
machine. The stores felt very old fashioned. The decor, the sounds, the
layout, everything made me feel like it was 1995 again.

This morning on his blog, Om Malik wrote this:

> United Arrows is doing retail right — in Japan. A lot more US retails chains
> should be paying attention to them and their formula. They have 256 stores
> and yet everyone of them feels special. Everything in their store is
> thoughtfully and tastefully curated.

I've never been in a United Arrows store, but giving each store it's own
feeling seems like the right way to do things today.

~~~
ghaff
That's true (especially Sears). Though, to be honest, even when I walk into a
higher-end place that is clearly not cookie cutter, I'm still ready to get out
of there after 10 minutes. I'm just not the department store (or shopping
mall) demographic for the most part. Except for the occasional Apple Store
maybe and maybe a Target I just have very little reason to frequent most of
the places attached to malls in the US.

------
skocznymroczny
Stupid question: why are those pictures always black and white and such bad
quality?

------
downandout
Paywall bypass link:

[https://m.facebook.com/l.php?u=https%3A%2F%2Fwww.wsj.com%2Fa...](https://m.facebook.com/l.php?u=https%3A%2F%2Fwww.wsj.com%2Farticles%2Fthe-
hedge-fund-manager-whos-shorting-americas-malls-1493220669%3Fmod%3De2fb)

