Man, with (currently) four comments mentioning that this is "what bankruptcy is for", I think the point of the article might have been missed. This isn't some sneaky "one weird trick", and that's not the reason Bloomberg is reporting on it. In fact, the tone of the article to me is, "yup, companies do it all the time, but..." And the "but" is:
But the moves threaten to upend huge swaths of the real estate market and the half-trillion dollar market for commercial mortgage-backed securities.
It's not "Busted US Retailers Use Bankruptcy to Break Leases", but more the "...by the Thousands" part. Malls are going to start becoming ghost towns, especially with no anchor stores like Penny's and the since-departed Sears.
>But the moves threaten to upend huge swaths of the real estate market and the half-trillion dollar market for commercial mortgage-backed securities.
And?
Seriously. We either have to choose to be a market that is somewhat free or not. At this point, the government is choosing winners and losers. It is a repeat of 2008. Oh no, it is too big to fail.
Someone will come by with the investment to buy what is left. Perhaps they will run it better. Prepare better.
We're going through this with airlines and cruise companies now fighting for more money and loans from the government. Perhaps Delta grew too large to be what they are now. Maybe there are too many malls in existence. Maybe the method in which we collateralize mortgages doesn't make sense anymore.
Our economy has developed the too big to fail mindset and forgotten, largely, you can lose.
Commercial mortgaged backed securities are an investment. Investments come with risks. Bankruptcy is just part of that risk.
The US is thirty years out from the previous commercial real-estate reckoning. The S&L crisis. Everything that was booming a year ago was built on top of that reckoning.
Malls being ghost towns is a side story. After the 2008 residential MBS crash, as I understand it, a lot of that money moved to the then relatively stable commercial MBS market. If that market goes toes up in turn, with this...
Almost every single horror story of what could happen has NOT happened. Yes, too many people have tragically died, but a lot less than the horror stories of a million+ people. There is barely a recession, and the stock market is at all time highs. There was no supply chain implosion for food. There are no food bank lines. There is no mass homelessness.
Basically the Fed and the US government did their job. They stabilized the markets. The state governments (at least the competent ones) implemented lockdowns that cut the virus down. They will stabilize anything that is too big to fail.
I'm not too worried at this point, I don't think there will be any big problems. The Fed has learned a lot from the Great Recession and they are acting a lot more decisively than before. And I've lost a lot of money shorting the markets over the last 6 months so I've taken the other side of this and learned a lot (ie. don't fuck with the Fed).
> Malls are going to start becoming ghost towns, especially with no anchor stores like Penny's and the since-departed Sears.
Pretty sure that already happened. The US built waaay too much retail space[1], and still[2] has an overhang in most markets. And yea, Amazon kinda ate the Sears / JCPenny lunch, which has not helped matters.
On the other hand: what would they go do about it then? It the business fails it fails. It's not like you can pretend it is not failing and have them pay rent with their non-existent money.
I would have assumed malls were already on the out prior to COVID - I assume this is just accelerating the timeline? I think every mall the knew of growing up and in college is no more except for the largest (Kind of Prussia). Did your Malls usage also include stripmalls?
Now if we can just seem to adjust whatever weird tax rules or situations allow real estate to sit largely empty and apparently not not put all that much pressure on prices... that would help too. I see a lot of commercial real estate sit empty for ages and I hear from the local businesses that the rates are still high and even going up.
A development not far from me has been at sub 50% capacity for YEARS and I've heard from locals that they're moving because they won't adjust the pricing or are demanding more...
Would be nice to see some variety beyond Chipotle or Noodles & Company or rando fitness center... or mostly nothing.
Seems like bad economic policy to have a system that has capacity, but leaves it unused save for only the highest of profit margin chains ... who probably don't pay the rate anyone else would.....
This is exactly why we have bankruptcy! These businesses are failing and need to renegotiate their liabilities. This is expected and healthy if you want any retailers to have any hope of survival going forwards.
You're not wrong, and under normal circumstances this would be a blip on the radar. However, the hundreds if not thousands of locations each of these companies plan to shutter will have an unprecedented effect on the commercial real estate market. Within months we will have thousands of property owners suddenly unable to pay their mortgages because they no longer have tenants, meaning they will have to default on their loans. This will greatly affect banks and other lenders in the months and years following. It's a domino effect that will be felt for many, many years after we've wiped out SARS-CoV-2.
There's a difference between strategic failure caused by poor management and interruption of a viable business by an external event - force majeure.
You can buy insurance policies to protect your business against the latter. (Although with Covid a lot of insurers are refusing to pay out, and some are being taken to court.)
Where there's no insurance it's reasonable for government to act as an informal insurer of last resort, because it's hugely more expensive and damaging to allow businesses that are otherwise viable to go to the wall.
You don't just lose a viable business, but you create losses that ripple through the entire system causing upstream insolvencies. So you lose the productivity of all the businesses affected and the spending power of their employees. It takes a good long time to rebuild both.
The problem is in the grey area where it's hard to tell if businesses are genuinely viable and just need temporary reinforcement, or whether they're already zombies and need to be killed off.
Patronage and politics makes this even more complicated.
But the principle is still sound: in a national disaster insolvency is not a clear signal of failure, and allowing all business to crash regardless will do much more harm than good.
It’s going to have severe consequences somewhere down the line as I don’t believe anything nearing the magnitude and density of the coming bankruptcies has ever occurred. That being said I agree it’s meant to be this way, and I will always prioritize RESPONSIBLE business trying to restructure and preserve jobs over landholders who basically do very little work while extractIng as much rent out of their tennants as they possibly can without them leaving.
The problem with external shocks is that during the "readjustment", people still have to eat. The people who worked in the shops, the people who own the buildings etc.
In the end, just keeping companies afloat through rare shocks might be the cheapest option.
Market economies create efficiency, not resiliency.
It's a bit depressing to see the greed-by-framing here. I feel like the banks are playing musical chairs rather than trying to operate sustainably. It seems like a more efficient approach — one that is not as economically destructive to GDP after the pandemic — would be:
1. Retailer notifies their lease holders that a given location is impacted by public health closures, reducing revenues for products originating from that location from (100% of $X) to (y% of $X), and warns the leaseholder that the retailer may be forced to file bankruptcy if easement is not granted, reducing rent paid to (0% of $X).
2. Leaseholder notifies their mortgage holder of this, and warns the mortgage holder that the leaseholder may be forced to file bankruptcy if easement is not granted, reducing mortgage paid to (0% of $X).
3. Mortgage holder notifies the property tax authorities of this, and warns those authorities that the lendor may be forced to file bankruptcy if easement is not granted, reducing property tax paid to (0% of $X).
4. Property tax authority grants a public health easement to the mortgage holder, conditional on the same easement being granted to the leaseholder.
5. Mortgage holder grants a public health easement to the lease holder, conditional on the same easement being granted to the retailer.
6. Lease holder grants a public health easement to the retailer.
If anyone refuses to grant the easement, they get nothing anyways, because anyone in the stack can just give up and file for bankruptcy as a last resort — and that's where we're at today. It feels like a shell game because they're all trying to extract the maximum amount of money before bankruptcy, while withholding it until they themselves can file bankruptcy. It's such a shame they can't work together to get everyone that's owed a dollar to agree to just suspend their demands for their dollar until this is over. They're not getting their dollar either way, but if they'd rather have their tenants breaking leases left and right, so be it.
You need a 4. Federal government issues $$$ to property tax authority to cover income gap. The property tax authority needs that revenue now to pay their bills (teachers, sanitation, fire, EMT, police, etc), an easement won't cut it. They need a backstop before they can do that since all of those are critical or legally mandated services and municipalities run very lean.
It's not just property tax. The investors who fund the mortgages would have to take a haircut. Which could destabilize banks, pensions, insurance companies, any institution relying on endowment earnings to operate, etc.
that would've been the smart thing to do... or a mandate from the top down fed > banks > lenders > corp|residential landlord > tenant to allow partial payments based on need, until crisis is over.
Everyone succeeds then. Might still need some stimulus for the bottom 10% of society but maybe not as badly.
The US has too much retail space. Per capita, it has 5x as much as Europe (23.5 sq ft in the US vs 3-4 sq ft in most European countries) and 8-10x as much as Asia (2-3 sq ft). We may be looking at a permanent decrease as a result of this pandemic. But even if it goes down by 20%, the US will still have way more than anywhere else.
I think we'll be better off when we use the excess retail space for something else whether it's apartments, warehouses, or offices. But the transition will be painful.
I’m not sure if retail space alone is a good measure. The US (and Canada) love massive stores like Costco, Home Depot, Walmart. And there are a LOT of Walmart’s.
Those stores seem to be doing just fine during the pandemic (HD has been packed when I went).
Would be more useful to see a breakdown by retail size. Say <500 sq ft, 500-2000 sq ft, 2000-10000 sq ft and >10000 sq ft.
I’d suggest the small places are the ones at high risk (just thinking about typical tenants).
A while back, in the early 2000s (maybe the 90s), there was all that talk floating around about the ghost Walmarts left over when they'd over-saturate a market with box stores to kill off the competition then scale back to a single mega-location. When that was happening the US did nothing - they didn't try and protect small businesses ("it's the will of the market!") and nor was Walmart even gone after for littering.
This situation exists because the US has been overly complacent for quite a while and happy to ascribe these warning signs as mere minor side effects of the most patriotic American capitalism - this was pretty easy to do while everything was building leverage on leverage and everyone had plenty of bread on the table.
The US economy is rotten to the core, it's really unfortunate but I hope when this house of cards inevitably falls down it at least serves as a lesson for history.
It's basically the definition of bankruptcy that you need to renege on your obligations to someone. Landlords run that risk. They're hardly the ones losing the most -- think of the poor creditors and shareholders. The landlords are only losing the expense of finding their next tenant, plus any difference in the market rate when the original lease was signed and today.
Not mentioned at all in the article, but what will be more interesting is when all of the landlords start appealing their property tax assessments. Obviously if the government has prevented the property from being used, it's not worth what is was previously assessed at. State and local governments are in for a world of hurt.
I thought the same thing, these businesses clearly are out of cash and credit and need to break leases to save SOME stores compared to losing all.
The idea of harsh leases in large retail stores kinda always made me laugh: For a JCP or the like, the setup costs, warehousing, and hiring work is so great that the only case where they would close a store is to stop cash from hemorrhaging beyond control. On a large scale this forces the only move for survival to be bankruptcy after falling way too far. If you're PREIT or such one can't help but realize that the overall outcome is that you'll push a tenant of a vast majority of your stores into really bad financial states that then leads to a much harder bankruptcy and possibly dissolving of the company, ripping stores out of ALL of your malls instead of 30%.
And thats why PREIT has so many malls with empty giant rooms and defaulted loans.
I’ve owned a physical business before. What the article fails to mention is that small to medium sized businesses generally sign leases with joint and several (personal) liability attached.
Landlords can and do go after the person after the bankrupt LLC is raided.
I have a heavy exposure in REITs (my only non-index fund investment). I treat these as passive investments so I had to look to see what I was actually invested in. I have no commercial exposure, but even what I have has been hit hard by COVID. AVB (residential), PEAK (life science/medical office/senior housing) and PSA (Public Storage) are all down roughly 25% YTD. I have to imagine that REITS in retail/office space are going to be doing even worse as these three are sectors that are less likely to see long-lasting contractions.
Someone mentioned PREIT (NYSE: PEI) in another comment so I checked to see how they're doing. Down 80% YTD. I'm glad not to be invested in malls and shopping centers.
PSA being down is interesting. I might have thought there would be greater demand for storage units as people clear stuff out of their houses to make room for home offices/gyms/etc.
That said, all the people who've lost jobs or hours are probably not looking to pay $100s/month for an auxiliary junk room.
I want to loop this back to something discussed on HN before. During lockdown, some optimistic WFHers were saying that the transition to WFH would up-end rental markets in city centres, as employees flood out of cities since they've been allowed to work remotely and won't pay a premium for a commutable home. Well it's looking more and more like that effect is going to be almost impossible to measure in comparison to the massive recession coming. Rents are going to drop because shops are going bankrupt, those areas are going to try to find new rentals, convert to offices or housing and that'll drive down prices.
I wonder how Apple will respond if malls start collapsing.
(I’ve heard rumor that) they pay just pennies on the dollar for their store leases because they draw so much foot traffic to the malls.
I can’t imagine them keeping stores open in the middle of a nearly empty mall, but I’ve only ever seen pictures of an Apple store that wasn’t in a mall or strip mall.
Worked in commercial real estate before the last crash and have a few friends working at big mall companies. Have seen some really cool plans to turn a whole mall into residential with the interior being common areas and parks etc. Some really neat concepts.
if only the government/bank could've put moratoriums top down, freezing all rent commercial and residential. We'd be in a much better place.
Now we have economic collapse, 40 million looming evictions, people will starve, and freeze, or die in a shelter w/ the pandemic.
Businesses are failing because they have to meet monthly recurring bills w/ or w/out actual sales receipts. They still need to meet payroll if they're even open.
Could've been stopped from the lenders down, instead of try to just throw money every which direction and see which sticks.
I'm for handouts for the poorest, but i think the other handouts were horribly done, and the loan program.
I'm in the group of businesses that got handouts that the business didn't need to survive, but the handouts did mean folks were kept on staff even without work. This paid off big time for us (especially if covid had resolved by September) because we have seen demand pick back up pretty quickly in our space and the staff were ready to go.
So if the downward trends had continued we'd have been in good shape and it would have been good timing. Of course, our covid control in the US has been a total disaster relatively to other much poorer countries even - we're still trying to figure out if masks are worth wearing (20 cents to maybe save a life).
Instead of handouts the layoffs would have been a fine option, folks would have received unemployment. But the overhead and disruption of firing folks, canceling their benefits, and then re-hiring them (maybe) etc is not insignificant. The handouts meant we are ready to go once everything resolves which was supposed to be a lot sooner than it is looking like it will be.
> if only the government/bank could've put moratoriums top down, freezing all rent commercial and residential. We'd be in a much better place.
This is exactly what I was saying in March, but everyone was too busy clutching their pearls, concerned about what will happen when pension funds lose a few percentage points of their value.
Well, now they are going to lose a few percentage points of their value, in addition to society dealing with a tsunami of bankruptcies, on top of trillions of bailouts. And we're still early on in this epidemic.
The question here is the same as the question when unemployment numbers come up: what will the bounce back look like? If the same people go back to the same jobs in the same locations at the same companies (maybe renamed for bankruptcy purposes) then it will make no difference. If they don't then it will. But there is no way of knowing that until the bounce back begins. And that's a few months (a figure pulled from my arse) away.
I wonder if, and how much commercial real estate might be turned into residential living spaces in the next few years. That could be a huge coup for young people in the United States.
I guess there are a lot of other lagging issues like zoning, rebuilding some places, or just redesigning, so may take quite a while, or not happen at all.
I know this is commercial, but can be good if it drives down property prices and rents. I honestly think a lot of the benefits people want from universal basic income would equally come from just having lower commercial and residential rents. I recognize that's a big "just".
There are actually very simple tax schemes that go quite bit further. A high Land Value Tax + low tax on improvements (eg buildings) means the portion of rent due to the landlord’s actions/investments generally get kept by that landlord, but the portion of rent not due to his/her actions (eg good schools/restaurants/transit/employers nearby) get recouped as tax.
You should look into LVT, you’re right that would be huge for people.
My town is already facing a ~10% gap due to loss of state aid and income tax revenue. Many municipalities have contracts with contractual pay increases e.g. 3% per year COL increases on top of the constantly increasing healthcare costs (those were ~7% last year for my town). All told, that 10% gap turns into something closer to 15% due to the structural increases in outflows. And all of this for a town that is one of the few that has a AAA bond rating. Absent radically slashing services I don't think most municipalities can afford any sort of cut.
No, because regardless of whether or not there's an epidemic, someone needs to run the schools, staff the fire station, fund an overpaid police force, and fix potholes.
Theoretically, you could borrow money for all this, but then you'll just get a bigger tax bill next year.
In short, we could see a "tsunami" (the OP's word) of unforeseen losses in highly-rated commercial mortgage-backed securities (CMBSs), because credit-risk models used to construct and price CMBS tranches never considered the possibility that a large number of retailers would simultaneously break so many leases via bankruptcy, simultaneously impacting so many malls across the country.
Quoting from the OP:
> 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."
Think: something analogous to the tsunami of unforeseen losses in residential mortgages that triggered a financial crisis in 2008, but with commercial mortgages this time around. It won't be pretty.
[+] [-] mikestew|5 years ago|reply
But the moves threaten to upend huge swaths of the real estate market and the half-trillion dollar market for commercial mortgage-backed securities.
It's not "Busted US Retailers Use Bankruptcy to Break Leases", but more the "...by the Thousands" part. Malls are going to start becoming ghost towns, especially with no anchor stores like Penny's and the since-departed Sears.
[+] [-] pgrote|5 years ago|reply
And?
Seriously. We either have to choose to be a market that is somewhat free or not. At this point, the government is choosing winners and losers. It is a repeat of 2008. Oh no, it is too big to fail.
Someone will come by with the investment to buy what is left. Perhaps they will run it better. Prepare better.
We're going through this with airlines and cruise companies now fighting for more money and loans from the government. Perhaps Delta grew too large to be what they are now. Maybe there are too many malls in existence. Maybe the method in which we collateralize mortgages doesn't make sense anymore.
Our economy has developed the too big to fail mindset and forgotten, largely, you can lose.
[+] [-] brudgers|5 years ago|reply
The US is thirty years out from the previous commercial real-estate reckoning. The S&L crisis. Everything that was booming a year ago was built on top of that reckoning.
[+] [-] throwanem|5 years ago|reply
(That hasn't been in the news for a few months, so I had to look around for some perspectives. Cf. https://daily.jstor.org/the-commercial-real-estate-markets-i... and, perhaps more controversially, https://www.propublica.org/article/whistleblower-wall-street..., suggesting that some of the same practices that turned the residential market into a crash-in-waiting may have been applied in the commercial market as well.)
[+] [-] ping_pong|5 years ago|reply
Basically the Fed and the US government did their job. They stabilized the markets. The state governments (at least the competent ones) implemented lockdowns that cut the virus down. They will stabilize anything that is too big to fail.
I'm not too worried at this point, I don't think there will be any big problems. The Fed has learned a lot from the Great Recession and they are acting a lot more decisively than before. And I've lost a lot of money shorting the markets over the last 6 months so I've taken the other side of this and learned a lot (ie. don't fuck with the Fed).
[+] [-] gruez|5 years ago|reply
I wouldn't worry about that. I fully expect the federal reserve to "fix" this by buying the toxic assets with printed money.
[+] [-] jldugger|5 years ago|reply
Pretty sure that already happened. The US built waaay too much retail space[1], and still[2] has an overhang in most markets. And yea, Amazon kinda ate the Sears / JCPenny lunch, which has not helped matters.
[1]: https://qz.com/1032723/theres-much-more-empty-retail-space-i... [2]: https://amp.cnn.com/cnn/2020/01/08/business/macys-store-clos...
[+] [-] oneplane|5 years ago|reply
[+] [-] methodin|5 years ago|reply
[+] [-] duxup|5 years ago|reply
Now if we can just seem to adjust whatever weird tax rules or situations allow real estate to sit largely empty and apparently not not put all that much pressure on prices... that would help too. I see a lot of commercial real estate sit empty for ages and I hear from the local businesses that the rates are still high and even going up.
A development not far from me has been at sub 50% capacity for YEARS and I've heard from locals that they're moving because they won't adjust the pricing or are demanding more...
Would be nice to see some variety beyond Chipotle or Noodles & Company or rando fitness center... or mostly nothing.
Seems like bad economic policy to have a system that has capacity, but leaves it unused save for only the highest of profit margin chains ... who probably don't pay the rate anyone else would.....
[+] [-] seibelj|5 years ago|reply
[+] [-] morganvachon|5 years ago|reply
You're not wrong, and under normal circumstances this would be a blip on the radar. However, the hundreds if not thousands of locations each of these companies plan to shutter will have an unprecedented effect on the commercial real estate market. Within months we will have thousands of property owners suddenly unable to pay their mortgages because they no longer have tenants, meaning they will have to default on their loans. This will greatly affect banks and other lenders in the months and years following. It's a domino effect that will be felt for many, many years after we've wiped out SARS-CoV-2.
[+] [-] TheOtherHobbes|5 years ago|reply
You can buy insurance policies to protect your business against the latter. (Although with Covid a lot of insurers are refusing to pay out, and some are being taken to court.)
Where there's no insurance it's reasonable for government to act as an informal insurer of last resort, because it's hugely more expensive and damaging to allow businesses that are otherwise viable to go to the wall.
You don't just lose a viable business, but you create losses that ripple through the entire system causing upstream insolvencies. So you lose the productivity of all the businesses affected and the spending power of their employees. It takes a good long time to rebuild both.
The problem is in the grey area where it's hard to tell if businesses are genuinely viable and just need temporary reinforcement, or whether they're already zombies and need to be killed off.
Patronage and politics makes this even more complicated.
But the principle is still sound: in a national disaster insolvency is not a clear signal of failure, and allowing all business to crash regardless will do much more harm than good.
[+] [-] borkt|5 years ago|reply
[+] [-] alkonaut|5 years ago|reply
In the end, just keeping companies afloat through rare shocks might be the cheapest option.
Market economies create efficiency, not resiliency.
[+] [-] floatingatoll|5 years ago|reply
1. Retailer notifies their lease holders that a given location is impacted by public health closures, reducing revenues for products originating from that location from (100% of $X) to (y% of $X), and warns the leaseholder that the retailer may be forced to file bankruptcy if easement is not granted, reducing rent paid to (0% of $X).
2. Leaseholder notifies their mortgage holder of this, and warns the mortgage holder that the leaseholder may be forced to file bankruptcy if easement is not granted, reducing mortgage paid to (0% of $X).
3. Mortgage holder notifies the property tax authorities of this, and warns those authorities that the lendor may be forced to file bankruptcy if easement is not granted, reducing property tax paid to (0% of $X).
4. Property tax authority grants a public health easement to the mortgage holder, conditional on the same easement being granted to the leaseholder.
5. Mortgage holder grants a public health easement to the lease holder, conditional on the same easement being granted to the retailer.
6. Lease holder grants a public health easement to the retailer.
If anyone refuses to grant the easement, they get nothing anyways, because anyone in the stack can just give up and file for bankruptcy as a last resort — and that's where we're at today. It feels like a shell game because they're all trying to extract the maximum amount of money before bankruptcy, while withholding it until they themselves can file bankruptcy. It's such a shame they can't work together to get everyone that's owed a dollar to agree to just suspend their demands for their dollar until this is over. They're not getting their dollar either way, but if they'd rather have their tenants breaking leases left and right, so be it.
[+] [-] wins32767|5 years ago|reply
[+] [-] supertrope|5 years ago|reply
[+] [-] gremlinsinc|5 years ago|reply
Everyone succeeds then. Might still need some stimulus for the bottom 10% of society but maybe not as badly.
[+] [-] dencodev|5 years ago|reply
[+] [-] jrehor|5 years ago|reply
I think we'll be better off when we use the excess retail space for something else whether it's apartments, warehouses, or offices. But the transition will be painful.
[+] [-] refurb|5 years ago|reply
Those stores seem to be doing just fine during the pandemic (HD has been packed when I went).
Would be more useful to see a breakdown by retail size. Say <500 sq ft, 500-2000 sq ft, 2000-10000 sq ft and >10000 sq ft.
I’d suggest the small places are the ones at high risk (just thinking about typical tenants).
[+] [-] munk-a|5 years ago|reply
This situation exists because the US has been overly complacent for quite a while and happy to ascribe these warning signs as mere minor side effects of the most patriotic American capitalism - this was pretty easy to do while everything was building leverage on leverage and everyone had plenty of bread on the table.
The US economy is rotten to the core, it's really unfortunate but I hope when this house of cards inevitably falls down it at least serves as a lesson for history.
[+] [-] asdfasgasdgasdg|5 years ago|reply
[+] [-] ralph84|5 years ago|reply
[+] [-] unknown|5 years ago|reply
[deleted]
[+] [-] happycube|5 years ago|reply
[+] [-] ethanbond|5 years ago|reply
[+] [-] stefan_|5 years ago|reply
[+] [-] AgloeDreams|5 years ago|reply
The idea of harsh leases in large retail stores kinda always made me laugh: For a JCP or the like, the setup costs, warehousing, and hiring work is so great that the only case where they would close a store is to stop cash from hemorrhaging beyond control. On a large scale this forces the only move for survival to be bankruptcy after falling way too far. If you're PREIT or such one can't help but realize that the overall outcome is that you'll push a tenant of a vast majority of your stores into really bad financial states that then leads to a much harder bankruptcy and possibly dissolving of the company, ripping stores out of ALL of your malls instead of 30%.
And thats why PREIT has so many malls with empty giant rooms and defaulted loans.
[+] [-] treyfitty|5 years ago|reply
Landlords can and do go after the person after the bankrupt LLC is raided.
[+] [-] dhosek|5 years ago|reply
[+] [-] dhosek|5 years ago|reply
[+] [-] joshcain|5 years ago|reply
That said, all the people who've lost jobs or hours are probably not looking to pay $100s/month for an auxiliary junk room.
[+] [-] Traster|5 years ago|reply
[+] [-] dwighttk|5 years ago|reply
(I’ve heard rumor that) they pay just pennies on the dollar for their store leases because they draw so much foot traffic to the malls.
I can’t imagine them keeping stores open in the middle of a nearly empty mall, but I’ve only ever seen pictures of an Apple store that wasn’t in a mall or strip mall.
[+] [-] advertising|5 years ago|reply
[+] [-] gremlinsinc|5 years ago|reply
Now we have economic collapse, 40 million looming evictions, people will starve, and freeze, or die in a shelter w/ the pandemic.
Businesses are failing because they have to meet monthly recurring bills w/ or w/out actual sales receipts. They still need to meet payroll if they're even open.
Could've been stopped from the lenders down, instead of try to just throw money every which direction and see which sticks.
I'm for handouts for the poorest, but i think the other handouts were horribly done, and the loan program.
[+] [-] donor20|5 years ago|reply
So if the downward trends had continued we'd have been in good shape and it would have been good timing. Of course, our covid control in the US has been a total disaster relatively to other much poorer countries even - we're still trying to figure out if masks are worth wearing (20 cents to maybe save a life).
Instead of handouts the layoffs would have been a fine option, folks would have received unemployment. But the overhead and disruption of firing folks, canceling their benefits, and then re-hiring them (maybe) etc is not insignificant. The handouts meant we are ready to go once everything resolves which was supposed to be a lot sooner than it is looking like it will be.
[+] [-] vkou|5 years ago|reply
This is exactly what I was saying in March, but everyone was too busy clutching their pearls, concerned about what will happen when pension funds lose a few percentage points of their value.
Well, now they are going to lose a few percentage points of their value, in addition to society dealing with a tsunami of bankruptcies, on top of trillions of bailouts. And we're still early on in this epidemic.
[+] [-] LatteLazy|5 years ago|reply
[+] [-] codezero|5 years ago|reply
I guess there are a lot of other lagging issues like zoning, rebuilding some places, or just redesigning, so may take quite a while, or not happen at all.
[+] [-] gedy|5 years ago|reply
[+] [-] ethanbond|5 years ago|reply
You should look into LVT, you’re right that would be huge for people.
[+] [-] jxramos|5 years ago|reply
[+] [-] wins32767|5 years ago|reply
[+] [-] vkou|5 years ago|reply
Theoretically, you could borrow money for all this, but then you'll just get a bigger tax bill next year.
[+] [-] api|5 years ago|reply
[+] [-] cs702|5 years ago|reply
Quoting from the OP:
> 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."
Think: something analogous to the tsunami of unforeseen losses in residential mortgages that triggered a financial crisis in 2008, but with commercial mortgages this time around. It won't be pretty.