Retail properties dressed for distress

By Ilaina Jonas

NEW YORK (Reuters)- For David Simon, chief executive of Simon Property Group (SPG.N: Quote, Profile, Research, Stock Buzz), the largest U.S. owner of malls and shopping centers, retail property may be less about dress this year and more about distress.

The credit crisis has made the cost of new loans expensive or impossible for commercial real estate buyers and developers. That could leave some with short-term debt scrambling for loans to complete their projects or hold onto new ones.

"There's a lot of broken projects out there," Simon, who heads Simon Property Group, said during a recent conference call.

Soaring gasoline and food prices and the U.S. housing crisis have forced the U.S. consumer to cut other spending and retailers to reel in expansion plans. Those who own shopping centers are likely to feel a double punch: less demand for space and falling prices of their centers due to higher financing costs for buyers.

Amid the tougher times, thousands of developers, retailers, shopping center owners, bankers and brokers this week will descend upon Las Vegas for an annual convention sponsored by the International Council of Shopping Centers. For two days at RECon they will meet, talk and make new contacts they hope will lead to deals for new shopping centers they plan and tenants they hope to land.

Last year a record of nearly 50,000 people came to the events. But this year, attendance could fall.

So far, commercial real estate has seen vacancies rise mildly and loan default rates have generally been low. But the sector lags the general economy, and many investors and other experts believe the sector will see prices fall about 15 percent to 20 percent from their highs of last year.

"My view of the world is that the markets typically correct from most liquid to least liquid," said Spencer Haber, chief executive of H2 Capital Partners, an alternative investment firm specializing in commercial real estate securities.