The Death Of The Mall

We’ve all heard this story before.

Malls are dying. Commerce is moving online at a breakneck pace. Investing in retail is a death wish.

No less a figure than Bill Gates, Sr. told me that in a decade, malls would only be inhabited by climbing walls and paintball courses, and that was a decade ago.

Except it didn’t quite work out that way. Lesser quality malls are playing out Mr. Gates’ dire forecast. But others are booming. It turns out that there are malls, and then there are malls.

There is one big kicker here that no one is noticing except me. If my prediction that this is not a low-interest rate decade but a LOW-INTEREST RATE CENTURY turns out to be correct, then mall REITs with their high yields are the “BUY” of the century, but only if you have a very long-term view.

Let me expand a bit on my thesis.

Technology is moving forward at an exponential rate. As a result, product performances are improving dramatically while costs are falling. Commodity and energy prices are also rising, they are but a tiny fraction of the cost of production.


The nearest hint of real inflation won’t arrive until the 2020s when Millennials become big spenders, driving up the cost of everything.

We also have a Fed that is pursuing the most dovish policies in history. It’s looking like interest rates peak at 3.25% in this cycle, and then go negative when we go into the next recession. That is about 300 basis points lower than the top seen prior to the last recession.

So, let’s go back to the REIT thing. Real Estate Investment Trusts are a creation of the Internal Revenue Code which gives preferential tax treatment for investment in malls and other income-generating properties.

There are 1,100 malls in the United States. Some 464 of these are rated as B+ or better and are concentrated in the biggest spending parts of the country (San Francisco, North New Jersey, Greenwich, CT, etc).

Trading and investing for a half-century, I have noticed that most managers are backward-looking, betting that existing trends will continue forever. As a result, their returns are mediocre at best and terrible at worst.

Truly brilliant managers make big bets on what is going to happen next. They are constantly on the lookout for trend reversals, new technologies, and epochal structural changes to our rapidly evolving modern economy.

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