Closed stores at Burlington Center Mall in New Jersey helped inspire a hedge fund’s bet against malls’ debt.PHOTO: SERENA NG/THE WALL STREET JOURNAL

BURLINGTON, N.J.—As a youth Eric Yip spent weekends working in a small shop at the bustling Burlington Center Mall, where his parents sold housewares and rock band T-shirts. That has given Mr. Yip the insight to make one of the most talked-about trades on Wall Street: a “short” wagering that many malls across America are doomed.

These days, Burlington Center is a silent place. Of around 100 stores, only about a dozen remain open. Macy’s and J.C. Penney are gone, leaving Sears as the last anchor tenant. Vacant properties surround a dry fountain whose centerpiece, a life-size bronze elephant, used to spout water onto its back.

The mall’s ghostly presence has spurred a financial wager that Mr. Yip, now a New York hedge-fund manager, is pitching to investors many times his size. Starting in late 2015, he began visiting shopping centers across the U.S. to take their vital signs. Concluding that dozens faced a fate akin to Burlington Center’s, as internet shopping becomes more dominant, he placed a bearish bet on an obscure index linked to the performance of bonds that are backed by commercial mortgages.

So far, so good. A slice of the index, which Wall Street calls the “CMBX 6,” has tumbled 6.3% since the start of this year, according to IHS Markit . The decline is good news for anyone shorting the index, or betting on it to fall, as he is.

Mr. Yip’s hedge fund, Alder Hill Management LP, gained 8% in the first quarter of 2017, said people familiar with its performance, fueled in part by the bearish bets on two index slices.

Mr. Yip has been pitching his idea to other investors. Earlier this year, he circulated a 58-page report that mapped out a dire outlook for regional shopping centers and said more than two dozen whose debt was reflected in the index were likely to default. He presented his thesis to a group of investment firms at a lunch in Midtown Manhattan.

The daring trade, potential payoff and Mr. Yip’s aggressive marketing have drawn comparisons to the way a few canny traders and hedge funds bet against an index tied to subprime mortgage bonds during the housing bubble a decade ago. That wager proved lucrative when housing went into a deep swoon and thousands of homeowners defaulted.

Mr. Yip said investors could make huge profits if, for instance, Sears Holdings Corp. were to file for bankruptcy, which his report called “likely just a matter of timing.” The closure of a sea of Sears stores could lead some other retailers to break their mall leases, he said, ultimately leaving struggling malls for dead.

Sears Holdings says it isn’t in peril. Howard Riefs, a spokesman, said the company has sold assets and taken other steps to “improve [its] operational performance and financial flexibility.” Sears closed 150 of its approximately 1,430 Sears and Kmart stores so far this year.

Corvex Management LP, Aurelius Capital Partners LP and Gratia Capital LLC have all made negative bets on the index similar to Mr. Yip’s, according to people familiar with the funds. The volume of outstanding bets on the index has swelled by more than $2 billion since Mr. Yip began shopping his trade around.

Eric Yip of Alder Hill Management has bet against mall debt. PHOTO: BRIDGET BADORE

While many people are bearish on the future of malls, there’s little consensus about how an investor might successfully bet against them.

Any downturn in commercial real-estate debt is thought unlikely to be as brutal as the housing meltdown, partly because most of the bonds are backed not just by malls but by a wide variety of properties, including hotels and office buildings.

The index Mr. Yip is betting against has a higher concentration of shopping centers than similar financial instruments, but still only around 40 of the roughly 1,500 loans underpinning the index’s performance are mall debt. Debt of weaker malls makes up less than 15% of the index, according to Bank of AmericaMerrill Lynch.

Many of the mall-based loans would have to default, and their properties be liquidated, before investors with bearish bets could collect a windfall. Skeptics say mall owners have tools at their disposal to improve their properties before they spiral into default.

“The CMBX is a very blunt tool” for betting against malls, said Alan Todd, head of commercial mortgage research at Bank of America Merrill Lynch. While retailers are downsizing at a faster clip, not every mall will be similarly affected, and the time between store closures and ultimate mall failures can vary significantly, he added.

Investment giants AllianceBernstein LP and Pacific Investment Management Co., or Pimco, have taken the opposite side of the mall-debt trade, with bullish positions on the CMBX 6, according to people familiar with their positions.

“We think the negative view is overstated,” said Brian Phillips, who oversees commercial real estate investments at AllianceBernstein.

Mr. Yip, 42 years old, declined to be interviewed. He confirmed some facts about his background through a spokesman.

Born in Hong Kong to a working-class family, he moved at age 5 with his parents to a New Jersey suburb of Philadelphia. His parents took over a shop called East in the Burlington Center Mall, selling candles, novelty items and imported goods. They closed the store in the 1990s after the local economy faltered, then later opened three shops in the region, including one back in the Burlington mall. Mr. Yip worked part time folding khakis at Banana Republic while in college, working in two of the region’s biggest shopping centers.

By the mid-2000s, all of his parents’ stores had closed after mall traffic declined and shoppers gravitated to more-popular retail centers.

After studying accounting at Villanova and getting some credit training at a bank, Mr. Yip worked as an analyst for the billionaire investors Carl Icahn and David Tepper. Mr. Tepper declined to comment, and Mr. Icahn didn’t reply to a comment request.

In 2014 Mr. Yip started Alder Hill, with Mr. Tepper as an investor. It had a rough start. For the year 2015, Alder Hill recorded a loss of 13.6%. Last year, it had a gain of just under 7%.

The exact size of Mr. Yip’s bet isn’t known. It makes up more than half the assets of Alder Hill Management, which manages about $200 million, said people familiar with his fund.

When Mr. Yip cast a critical eye on regional malls’ debt in 2015, the CMBX 6 index was trading near its full value, implying a very low probability of defaults.

Mr. Yip visited malls in Connecticut, Louisiana and elsewhere while on work trips and vacations, sometime taking his family along with him.

He would walk three times around each shopping center, studying its mix of stores and chatting with store owners, workers and shoppers.

He noticed some malls seemed poorly maintained and outdated, with a high concentration of mom-and-pop shops that, he figured, probably weren’t paying much in rent. Locally owned stores such as these have less staying power than stores that are part of national retail chains.

Many of the malls also faced stiff competition from trendier, more upscale shopping areas nearby that were still healthy. Mr. Yip identified 26 malls in the index that he considered high-risk. Sears was an anchor in 19 of them, and most also counted J.C. Penney Co. and Macy’s Inc. as tenants.

Three malls he singled out were owned by CBL & Associates Properties Inc., a Tennessee-based firm. Its Arbor Place Mall in Douglasville, Ga., has lots of small, local retailers and competes in “over-retailed” Atlanta, his report said.

CBL said the malls he cited are doing well and their loans are expected to be repaid. It said at Arbor Place Mall, national retailers occupy most of the stores. There are “downright inaccuracies” in Mr. Yip’s report, said CBL’s chief executive, Stephen Lebovitz.

Burlington Center Mall isn’t part of the CMBX index. It doesn’t have any debt for the index to reflect. The New Jersey mall is owned by a private-equity firm, Moonbeam Capital Investments LLC, that specializes in distressed assets.

Moonbeam thinks it has a way for Burlington Center to work out. The firm has plans to turn it into a mixed-use retail and small-business park.

The space once occupied by the Yip family’s store sits empty.

—Rob Copeland contributed to this article.

Write to Serena Ng at serena.ng@wsj.com and Esther Fung at esther.fung@wsj.com.