Confessions Of A Keynesian Enabler

(By Vic Patane)

For nearly 25 years I was involved in the creative structuring and issuance of debt. Real estate loans, municipal bonds, economic growth programs, deficit restructuring obligations, fiscal year adjustment bonds, tobacco recovery bonds, and revenue anticipation notes.  They all had one thing in common, DEBT.

One particular past endeavor recently punched me in the gut.  It’s a long story made short and in a way I really appreciate your attention, its therapeutic. This story could be dissected on so many levels today, let’s just focus on one.

Hudson Valley Mall was financed and constructed in the 1980’s with much fanfare and excitement as I secured the construction and permanent financing for my employer, Chemical Bank.  The Mall would serve to “revitalize” the Kingston, New York area with both part time construction and permanent jobs.  Task one was for the developer to secure major or anchor tenants which would then draw smaller companies to establish a presence at the Mall.  The developer in this case was a master in securing major brand names to anchor its regional mall endeavors.  Robert Congel, a well regarded, master developer in the upstate New York region quickly secured Macy’s and Sears and BINGO Chemical was ready with the financing.  Next, names like Gap and Spencer Gifts showed up, even a multiplex movie theater.  Congel’s team members were often rewarded with very small cash flow percentages in malls they were successful in bringing to market, say a ¼ of 1% of the facilities free cash flow they developed, what’s not to like about that!

Town happy (taxes, jobs), check; developer happy, check; tenants happy, check; Chemical Bank happy, check; and of course lawyers and accounts happy, check.

Fast forward 10 years and Chemical Bank overextended (what an awful term) itself in the real estate arena and was merged with Chase Manhattan (imagine that).  At its peak Chemical was the third largest commercial bank in America.

Hudson-Valley-Mall

Fast forward to July 2016, the Hudson Valley Mall is in receivership.  What a term, it can’t pay its nearly $50,000,000 in debt.  US National Bank owns the mortgage and with 20% plus vacancies the property will be put up for sale. Macy’s and Sears have long been gone There is a Dick’s and Best Buy but that’s the conversation you surely have had with a neighbor, “yeah I just buy the stuff at Amazon, it’s cheaper and the UPS guy always shows up”.  And a side note the UPS guys and gals are the salt of the earth, their parcel load always increases, their stress level increases, their traffic tolerance increases yet their pay isn’t on that increase list, bless them all!

These malls are debt saturated beasts and they don’t just go away.  Its really worse than not going away for as they deteriorate the wrong element is attracted which becomes self perpetuating.  Just take a look at the “Not Responsible” sign above.  Furthermore, take a gander at the other growth in the area, the “VTPS” syndrome common across America today.  Vapor Shops, Tattoo Parlors, Payday Loans, and Second Hand Outlets.  I assure you that as a green eared credit officer in the 80’s I was NOT writing about secondhand bargain bin stores in my credit report to senior management.

Perhaps these trends have happened too slowly to alarm most.  After all, I can still get that $4.75 Starbucks at the drive through next to the Mall.  I do ask myself who pays the taxes, the security fees, the snow removal, the police overtime the insurance?  Do I insure for a lesser amount to save money, do I try to make that argument, what is the amount?  Enough to cover the debt?  To pay for reconstruction? Do insurance premiums ramp higher on deteriorating properties? Who would pay to knock it down if that was the decision?  The list of bad questions is endless and Malls across America are limitless.

Does any of it matter, probably not I just need to be more positive and debt enabled.

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8 Comments on "Confessions Of A Keynesian Enabler"

  1. I feel his pain in his words.Keep Your chin up Vic…

  2. Vic,

    With you buddy. I brokered multi family loans for Chemical Bank in the early 80s.

    You have got to look at the bright side. Somebody will figure out a way to repurpose all of these old mall monsters and make a fortune. Like the guys in Pennsylvania that turned an old grain elevator into a hotel or the guys that turned a huge oil storage tank into a fancy restaurant.

    They may go to wrack and ruin but won’t they won’t go to waste.

    SteveW

    • In my state, Mn, I have seen a number of these old malls repurposed into centers for health care services, dentistry, vet services, fitness centers etc…….all health related under one roof.
      It must work. And think about it……how conenient is it to do all those appointments at one location?
      With the aging population needing more medical, and eye, and physical therapy etc appointments, and with people trying to be fit, and with people having more pets with greater needs also, this multipurpose health plex idea seems a good one.

      • They have an overabundance of every health-related service imaginable where I am.

        Until the municipalities back off the tax rates to reflect the newer economic reality, many of these facilities will not be re-purposed. Many cities and counties see commercial property as an enormous cash cow, with insane tax rates.

        Then the problem is do the [eventual] owners have enough capital to maintain these huge facilities? Roof, HVAC, plumbing, parking lots, etc.

        If those obstacles can be overcome…and when the peak-prosperity lease rates can no longer be obtained, lower lease rate businesses have a chance to make it.

  3. Pathognomonic of the crumbling infrastructure built in a high EROI era, and with cheaper labor and less regulations to be in compliance with.
    I’m near the largest mall in the Southeast. It is booming. But not old enough to require massive maintenance costs yet… plumbing, parking lots and access streets repaving, roofing, etc. I suspect owners are sucking out profit with inadequate capital in a fund for said maintenance. But a few miles away strip malls never greater that 50% capacity, some less, in ten years of trying to lease them, i.e. before 2008 collapse.

  4. Imagine a planet with 7 billion+ human inhabitants, and an economy growing at 5% a year. All build on cheap unlimited energy and of course debt to get that energy working with leverage.

    Those same inhabitants blew up the cheap energy like orphans in a petri dish, and are trying to understand what the fuck happened at the mall.

  5. OutLookingIn | July 28, 2016 at 1:55 pm |

    The “Boomer Generation” is now retiring in droves!

    Most must continue to work in some type of employment to make ends meet, since their pension incomes don’t cover their cost of living or their medical needs, which are steadily increasing.

    It has been suggested turning these vacant malls into medical – professional service centers. As the boomer’s age past any employment opportunity and become “wards” of the state, I foresee these malls used as warehouses for the aged poor, as extended care facilities offering palliative care as this segment of the population checks out. Welcome to the “new” retirement.

    • I’m a licensed & practicing health care provider.

      Yeah I see that scenario as possible. The government can float a bond to pay for the new roof, etc.

      Residents “compete” for the best rooms or wards in the former Victoria’s Secret store, etc. lol

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