Key Takeaways
- • A hedge fund manager named Eric Yip conducted ground-level due diligence on regional shopping malls across multiple states (Connecticut, Louisiana, and others) by physically visiting properties and analyzing tenant quality, store maintenance, and rent-paying capacity during 2015 and beyond.
- • Yip identified deteriorating mall fundamentals—poor maintenance, outdated facilities, and high concentrations of independent mom-and-pop retailers with lower rent-paying sustainability compared to national chains—that signaled distress despite the CMBX 6 index pricing in very low default probabilities at the time.
- • The hedge fund constructed a short position using the CMBX 6 index (a commercial mortgage-backed securities index), which served as an imperfect but available vehicle to express a bearish thesis on regional mall debt, generating a reported 119% return on the trade.
- • The investment thesis reflects a disciplined, research-intensive process similar to the pre-2008 housing crisis short strategies documented in "The Big Short," requiring months of field work and hypothesis testing before identifying actionable opportunities in illiquid or mispriced markets.
Summary
Eric Yip, a hedge fund manager with personal experience in shopping center operations, executed a contrarian short strategy against U.S. regional mall debt beginning in 2015. His approach exemplified ground-level fundamental research: Yip personally visited shopping centers across Connecticut, Louisiana, and other locations, often incorporating site visits into family vacations, where he conducted methodical three-loop walks around each property to assess tenant composition, physical condition, and economic viability.
During these site visits, Yip observed structural weaknesses that macro-level pricing had not yet reflected. Regional malls increasingly housed independent retailers and mom-and-pop operations rather than anchors from national chains—a critical distinction because locally-owned stores typically demonstrate weaker creditworthiness and lower rent-payment reliability. Properties showed signs of deferred maintenance and operational decline, contrasting sharply with the optimistic pricing embedded in the CMBX 6 index, a commercial mortgage-backed securities benchmark that was trading near full value in 2015, implying negligible default risk.
The execution phase required identifying an appropriate short instrument. The CMBX 6 index, while imperfect as a one-to-one hedge against specific mall operator exposure, represented the most pragmatic available vehicle for expressing the thesis. Constructing the position demanded significant operational effort—the fund had to identify the correct indexing mechanism, validate the thesis through extensive fieldwork, and navigate the structural limitations of available hedging tools. This labor-intensive process reflects the reality of institutional money management: successful short ideas require months of research traversing dead ends before crystallizing into actionable trades.
The trade ultimately delivered substantial returns, reported at approximately 119% on the investment, validating Yip's on-the-ground analysis that formal market pricing mechanisms had underestimated emerging distress in regional mall credit fundamentals. The strategy demonstrated that patient, granular research into neglected asset classes could uncover significant mispricings when broader market participants relied on backward-looking indices and models disconnected from operating realities.
During these site visits, Yip observed structural weaknesses that macro-level pricing had not yet reflected. Regional malls increasingly housed independent retailers and mom-and-pop operations rather than anchors from national chains—a critical distinction because locally-owned stores typically demonstrate weaker creditworthiness and lower rent-payment reliability. Properties showed signs of deferred maintenance and operational decline, contrasting sharply with the optimistic pricing embedded in the CMBX 6 index, a commercial mortgage-backed securities benchmark that was trading near full value in 2015, implying negligible default risk.
The execution phase required identifying an appropriate short instrument. The CMBX 6 index, while imperfect as a one-to-one hedge against specific mall operator exposure, represented the most pragmatic available vehicle for expressing the thesis. Constructing the position demanded significant operational effort—the fund had to identify the correct indexing mechanism, validate the thesis through extensive fieldwork, and navigate the structural limitations of available hedging tools. This labor-intensive process reflects the reality of institutional money management: successful short ideas require months of research traversing dead ends before crystallizing into actionable trades.
The trade ultimately delivered substantial returns, reported at approximately 119% on the investment, validating Yip's on-the-ground analysis that formal market pricing mechanisms had underestimated emerging distress in regional mall credit fundamentals. The strategy demonstrated that patient, granular research into neglected asset classes could uncover significant mispricings when broader market participants relied on backward-looking indices and models disconnected from operating realities.
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