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Explaining the deluge of retail bankruptcy filings

Troubled retailers 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 avoid the headache of protracted negotiations with individual landlords. 

  • Landlords are feeling the consequences: CBL Properties, 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, Bloomberg reported.
  • Why it matters: Bankruptcy is the most advantageous way for retailers to get out of leases. It flips the power from landlords to tenants. Retailers can legally reject a swath of leases in court, sometimes leaving building owners to collect just pennies on the dollar. Firms can also sell off favorable contracts to other parties to help repay creditors. 
  • Bankruptcy makes things easierSimon Property Group countersued The Gap, alleging the retail chain is using the pandemic as a pretext to avoid more than $107 million so far in lease payments on its stores nationwide. The filing in response to Gap’s lawsuit last month seeking rent relief and some lease calculations is the latest front in the battle between the largest U.S. shopping mall operator and one of its biggest tenants. The developer filed a separate lawsuit against Gap in June seeking $65.9 million in unpaid rent. Gap is engaged in similar litigation with Brookfield Properties.
  • Notable bankruptcies so far: Brooks Brothers, Sur La Table, J. Crew, Neiman Marcus Group, J.C. Penney, Men’s Wearhouse Lucky Brand, Stage Stores, GNC, Lord & Taylor, and Ascena (owner of Ann Taylor and Loft). [Bloomberg+Bloomberg2]

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