Neiman Marcus files for bankruptcy, casting uncertainty over Hudson Yards
Department store chain said “mass store closings are not a part of the bankruptcy filing”
Neiman Marcus has filed for bankruptcy, a move that could have major implications for Related Companies’ luxury Hudson Yards mall.
The department store chain filed for Chapter 11 protection Thursday in the U.S. Bankruptcy Court for the Southern District of Texas, following weeks of speculation about the debt-laden retailer’s future.
In a statement released by the company, Geoffroy van Raemdonck, Neiman Marcus’ chairman and CEO, said the coronavirus pandemic had triggered the filing.
“Like most businesses today, we are facing unprecedented disruption caused by the COVID-19 pandemic, which has placed inexorable pressure on our business,” he said.
The company has secured $675 million in financing from creditors to fund operations during bankruptcy proceedings, the statement said. Creditors have also agreed to a $750 million package to create more liquidity, with a goal to emerge from bankruptcy by fall. The company is aiming to eliminate about $4 billion of debt, and its creditors will become the majority owners of the company. Before the filing, some investors opposed to the bankruptcy had been pushing for a sale.
The announcement is a potential blow for Related and Oxford Properties, who announced in 2014 that Neiman Marcus would anchor its luxury mall at Hudson Yards, with the department store taking up 250,000 square feet on the upper levels — a figure later dropped to 190,000 square feet. The developers reportedly covered most of the cost for the store’s interior to be built, and agreed to an arrangement that involved Neiman Marcus paying a portion of sales in exchange for rent.
A representative for Neiman Marcus said in a statement that “mass store closings are not a part of the bankruptcy filing,” adding that “If there were to be future store closings it would be an operational decision on a case by case basis.” Related Companies did not immediately respond to a request for comment.
While the loss of a major anchor tenant could trigger an exodus of smaller tenants in a mall or shopping center, it could depend on the individual leases tenants have with their landlords, said Michael Sirota, bankruptcy attorney at Cole Schotz who is representing Modell’s Sporting Goods in its case. (Sirota declined to discuss Neiman Marcus but agreed to discuss retail leasing generally.)
Several smaller tenants inside the Hudson Yards mall had negotiated lease arrangements with rent discounts or even exit clauses if the anchor brand left and no equal replacement was found, according to a recent report from Business Insider. Finding such a tenant would be a difficult ask in the current climate.
Though during a pandemic, nearly everyone is looking for relief.
“In today’s world, every and any tenant is going to look for a reason to exit or to negotiate,” Sirota said.
The retail sector was already struggling before the pandemic, as consumer habits changed and department stores started to fall out of favor.
Now, with the virus shutting down much of the economy, the weakened sector has been hit especially hard. Nationwide store closures have led to millions of layoffs.
The nature of retail bankruptcies also has been shifting, with retailers asking to suspend their cases because of coronavirus-related uncertainties and for rent relief from landlords — often their largest unsecured creditors.
Neiman is the second luxury department store chain to file for bankruptcy in less than a year. Barneys New York suffered the same fate in August and was sold in the fall to Authentic Brands Group, which said it planned to close all Barneys locations and reduce the size of the flagship store on Madison Avenue.
Before the pandemic, industry experts were watching what would happen to other department stores and big-box retailers like JCPenney and Macy’s.
JCPenney, which has been struggling in recent years with lagging sales, skipped an interest payment in April, raising questions about whether it, too, might file for bankruptcy. And in February, Macy’s announced a restructuring plan, which called for shuttering its worst-performing stores and capitalizing on a plan to build a skyscraper over its iconic Herald Square store.
Soozan Baxter, a landlord consultant who worked on the retail leasing team for Related from 2015 to 2017, said in an interview last month that having Neiman Marcus at Hudson Yards “set the tone for what Related was trying to present not just Manhattan, but the whole world.”
“By getting them to go on the upper three levels of the project and really creating a very forward-thinking design and collection of merchandise … they were really trying to say, ‘This is going to be a beautifully curated, well-thought-out project,’” she said.
A little over a year after the mall’s opening, that vision could be in peril.
This story is breaking. Return to this page for updates.
Write to Sylvia Varnham O’Regan at email@example.com