NYT: Hedge funds made 100s of millions shorting mall stocks during pandemic

One of the most talked-about movies of 2015 was “The Big Short,” which tells the story of how hedge funds made heaps of cash off the mortgage crisis of 2008. Were a sequel to be made this year focused on the financial side-effects of the flu pandemic, it most likely would be called “The Big Mall Short.”

According to a report in the New York Times, Apollo Global Management made more than $100 million shorting CMBX 6, commercial mortgage backed securities with a strong exposure to malls. Mudrick Capital and Deer Park Capital were estimated to have banked about the same amount working the same game. 

“We periodically do shorts, and this is one of the best that I’ve ever seen,” said famed investor Carl Icahn, who was clued to the strategy by hedge fund executive Cate McKee of MP Securitized Credit Partners. They, too, reaped millions from the plight of malls disabled by COVID-19. A colleague of McKee’s named Daniel McNamara began calling the effort “The Big Short 2.0.”

The Times noted that “the pandemic, which has devastated the economy and hurt the livelihoods of millions, has turbocharged the bets that Mr. Icahn, Ms. McKee and others placed on the downfall of malls.”

Mudrick Capital had begun investigating the financial positioning of malls back in 2017. Chief Jason Mudrick and several of his analysts walked all 39 malls in the CMBX 6 index and took pictures and notes. That resulted in a slide deck that placed retail tenants in categories such as “distressed” (Gymboree and Claire’s) and “notable” (Hollister and Aeropostale.)

“It’s an absolute perfect storm, unfortunately, for the commercial real estate market,” Mr. Burg told the Times. “We see very little that the Fed or government can possibly do to prop this up when there’s so much excess supply.”

The CMBX 6 started 2020 strongly. But by May, as the year and the flu wore on and more short-sellers glommed onto the stock, it had fallen by more than 30 points.