Renfrew Report… The real reason America’s Malls Collapsed.
The Co-Tenancy Death Spiral
By Arron Renfrew | Asset Manager | Renfrew Team | AUM Real Estate
For years, the popular explanation for the collapse of America's shopping malls has been simple: Amazon and online shopping killed them.
But after working in real estate and asset management for many years, I can tell you that story is only partially true.
Yes, online retail changed consumer behavior. But the real structural failure that collapsed malls across America was something most people have never heard of:
Co-tenancy clauses.
And once they started triggering, they created what I call the Co-Tenancy Death Spiral.
What Is Co-Tenancy?
In most traditional mall leases, smaller retailers sign agreements that contain co-tenancy provisions.
These provisions protect tenants by tying their rent obligations to the presence of major anchor stores.
Typical anchor tenants included companies like:
Sears
JCPenney
Macy's
Nordstrom
These stores weren't just tenants — they were traffic generators.
The entire mall ecosystem depended on them.
The Co-Tenancy Trigger
Many mall leases include language that says something like:
If the anchor tenant closes, smaller tenants can reduce rent, switch to percentage rent, or terminate their lease.
This is called a co-tenancy contingency.
When an anchor store leaves, tenants suddenly gain the ability to:
• Pay dramatically reduced rent
• Renegotiate their lease
• Walk away entirely
And that is where the death spiral begins.
Step 1: Anchor Stores Begin to Fail
Department stores began declining long before e-commerce dominated retail.
Chains like Sears and JCPenney had been losing market share for decades due to:
changing consumer tastes
suburban retail competition
big box stores
poor corporate management
Eventually these anchors started closing locations.
Step 2: Co-Tenancy Clauses Trigger Across the Mall
Once an anchor closes, dozens of leases instantly change.
Tenants suddenly have legal options to:
reduce rent dramatically
pay only a percentage of sales
leave the mall early
The landlord’s revenue begins collapsing almost immediately.
Step 3: Mall Income Drops
Mall owners suddenly face:
• Lower rents
• Vacant spaces
• declining traffic
Even tenants who stay may only pay percentage rent, which is far lower.
The mall’s financial model breaks.
Step 4: Financing Becomes Impossible
Most malls are financed based on Net Operating Income (NOI).
When rent collapses:
property values plummet
refinancing becomes difficult
lenders pull back
A mall that once looked stable suddenly looks like a distressed asset.
Step 5: The Mall Enters the Death Spiral
Once co-tenancy clauses cascade through the tenant base, the result is predictable.
More tenants leave.
Traffic declines.
More anchors close.
More co-tenancy clauses trigger.
Eventually the mall becomes economically unsustainable.
Amazon Was the Match — Co-Tenancy Was the Gasoline
There’s no question that online retail changed everything.
Companies like Amazon made it easier for consumers to shop from home.
But the real structural collapse of malls was built into the leases themselves.
The system worked beautifully as long as anchor stores remained strong.
Once those anchors weakened, the entire structure became unstable.
The Lesson for Real Estate Investors
From an asset management perspective, the lesson is clear:
Lease structures matter as much as location.
Co-tenancy provisions were originally designed to protect tenants.
But when anchors failed, those protections created a cascading financial collapse that spread across the entire retail sector.
Many malls didn't die because people stopped shopping.
They died because their lease structures made survival impossible once anchors disappeared.
