Retail bankruptcy filings have skyrocketed in recent months, with a key benefit being the ability to exit a pricey, multi-year lease.
But that perk, which some companies deploy to get out of dealing with individual landlords for each property, is putting a strain on landlords and the overall market, according to Bloomberg.
“If this becomes a tsunami of retailers rejecting their leases, it’s going to trigger another part of the sea-change — the mortgages held by the landlords,” attorney Melanie Cyganowski, a partner at Otterbourg PC told the outlet.
Meanwhile, some retailers have tapped brokerages to sell off their leases. J.C. Penney recently hired Cushman & Wakefield and B. Riley Real Estate to sell its leases at 142 locations.
Nationwide, up to 25,000 retail stores could shut down this year, according to reports.
While bailing out on leases may be what’s best for retailers, landlords are feeling the pain. CBL & Associates Properties Inc., the owner of more than 100 shopping centers in the U.S., is preparing its own bankruptcy filing after rent collections cratered, according to Bloomberg.
Barry Sternlicht’s Starwood Capital Group missed payments on securitized debt linked to five shopping malls and Hudson’s Bay also skipped interest due on some CMBS.
Delinquencies on retail mortgages bundled into bonds reached 16 percent in July, up from 3.8 percent in January, according to Trepp. [Bloomberg] — Sasha Jones