Busted Retailers Use Bankruptcy to Break Leases by the Thousands

It seems strange that the stock market hasn't crashed, bringing everything else down with it.  But it hasn't.  It keeps recovering from the COVID collapse even though the news around the country seems to be pretty bleak for thousands of businesses.

Yes, Amazon and Fed Ex and UPS are doing the most business ever recorded.  One of my clients owns a swimming pool business and they have sold more pools than ever.  They are booked on installing pools through 2021!

But we wonder how long the bubble can last?

Today we read that thousands of businesses that had closed for COVID have filed for bankruptcy and will use that reason to get out of the leases.  I can't imagine owning retail property today or commercial property as we watch all of America start to order almost all their needs online.

With the pandemic intensifying the plight of U.S. retailers, companies from J. Crew Group Inc. to the owner of Ann Taylor are using Chapter 11 bankruptcy filings to quickly get out of costly, long-term leases and shutter thousands of stores.

By seeking court protection, firms like Neiman Marcus Group Inc. and the parent company of Men’s Wearhouse avoid the headache of protracted negotiations with individual landlords. But the moves threaten to upend huge swaths of the real estate market and the half-trillion dollar market for commercial mortgage-backed securities.

“This is now black-letter law -- a debtor can cram down a landlord,” said Melanie Cyganowski, a former bankruptcy judge who’s now a partner at law firm Otterbourg PC. “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.”

As bankrupt firms like J.C. Penney Co. and Brooks Brothers Group Inc. look to jettison leases, landlords are already feeling the consequences. CBL & Associates Properties Inc., owner of more than 100 shopping centers in the U.S., is preparing its own bankruptcy filing after rent collections cratered. And 16% of retail property loans bundled into CMBS were delinquent in July, according to research firm Trepp.

At least 25 major retailers have filed for bankruptcy this year, according to data compiled by Bloomberg. The most recent additions include Tailored Brands Inc., owner of Men’s Wearhouse and Jos. A. Bank, which is seeking to close about a third of its more than 1,200 stores, and Lord & Taylor parent company Le Tote, which said it could shut down all of the department store’s remaining locations.

“It’s economical, it’s efficient and it allows retailers to rationalize their footprint quickly,” said Fred Ringel, co-chair of the business finance and restructuring practice at the law firm Robinson Brog Leinwand Greene Genovese & Gluck P.C. Ringel, who works for landlords, said he’s busier than ever renegotiating leases and in some cases persuading tenants to forgo cancellations and stay under modified terms.

Here;  https://www.advisorperspectives.com/articles/2020/08/06/busted-retailers-use-bankruptcy-to-break-leases-by-the-thousands?bt_ee=jNp4GqQWMboJPkAn8olT4ePoM5Uvi2GvovRRElrtEUgZQrKC4eCSJyqlkrZv81k6&bt_ts=1597061030873

Is this just one more sign to those with eyes to see that this entire financial situation is just an illusion?