US may cover wave of retail bankruptcies

11 months ago

Many department stores, restaurants, clothing stores, and specialty stores have not been paying rent for three months, and property owners are losing patience, writes Bloomberg, citing informed sources and court documents.

“Letters of late payments are scattered across the country,” said Andy Grazer, president of A&G Real Estate Partners, which works with retail stores and other commercial real estate tenants. “There is real fear in the market.”

Broken stores such as Modell’s Sporting Goods and Stage Stores, as one of the reasons for bankruptcy, indicated pressure from landlords who, after several delays in rental payments, hung the lock on the doors of tenant stores and terminated the lease agreements. Many chain stores in the United States stopped paying rental payments after the start of the coronavirus pandemic, hoping that the cash savings would help them survive this difficult period.

However, the owners of commercial real estate have a hard time. According to CoStar Group estimates, in April the delay in rental payments by retailers in the United States amounted to $ 7.4 billion, or 45% of their total volume (see the chart at the beginning of the article – approx. ProFinance.ru).

“If commercial property owners do not take a break, the number of bankruptcies will increase,” Andy Grazer predicts.

However, not every landlord seals the doors of a tenant’s store after a late payment. In some cases, owners of commercial real estate send letters of late payment solely in order to record the very fact of violation of the lease for further legal needs with tenants.

Simon Property Group announced that it is negotiating with tenants of space in its shopping centers, taking into account their financial situation, market share and depth of relationship.

“The most important thing is that we have an agreement, and we expect that we will be paid,” said David Simon, head of the company, during a quarterly report to shareholders on May 11.

But owners of commercial real estate have their own debts and accounts to pay. By some estimates, their patience can be called outstanding. Usually they send a letter about the delay in rent 10 days after such an event, but today they wait weeks and months

“They have the right to demand rental payments,” said Vince Tybon, senior analyst at Green Street Advisors. “However, many tenants are on the verge of bankruptcy and simply are not able to pay right now.”

Many retail business owners who are considering bankruptcy face a difficult choice. On the one hand, this will allow them to terminate the lease, and on the other, oblige them to pay the rent until the court fixes the termination of the contract. And this is extremely difficult to do in the absence of revenue due to quarantined stores. And even when they open, no one guarantees an influx of buyers.

“The irritation on both sides is growing, and the situation is becoming more and more emotional,” said Tom Mullani, in charge of the reorganization business at Jones Lang LaSalle. “Today it is very bad to be a tenant of a retail space, but to be its owner is even worse.”

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