Mall Landlords, Authentic Brands in Talks to Buy J.C. Penney

Simon Property Group and Brookfield Property Partners are looking at buying another struggling retailer.

(Bloomberg)—The two largest mall landlords and Authentic Brands Group LLC are in talks to buy bankrupt department-store chain J.C. Penney Co., according to people familiar with the matter.

Authentic Brands may team up with Simon Property Group Inc. and Brookfield Property Partners LP to acquire the retailer as part of its court reorganization, said the people, who asked not to be identified because the talks are private. The discussions are still fluid and may ultimately end without a deal.

J.C. Penney, which filed for Chapter 11 protection in May, has been racing to firm up a business plan by a July 14 deadline, after which the company risks running out of cash to finance its reorganization and emerge from bankruptcy court.

For the landlords, buying J.C. Penney would ensure the survival of one of their most ubiquitous tenants amid a wave of retail distress that has seen thousands of stores close permanently. That’s in addition to the pandemic lockdown that shuttered most retailers for months nationwide.

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25,000 stores are predicted to close in 2020, as the coronavirus pandemic accelerates industry upheaval

U.S. retailers could announce between 20,000 and 25,000 closures this year, according to a tracking by Coresight Research, with 55% to 60% of those situated in America’s malls.

One result of the coronavirus pandemic could be as many as 25,000 store closures announced by retailers this year, as the crisis takes a toll on many businesses, and already has pushed some over the brink and into bankruptcy.

U.S. retailers could announce between 20,000 and 25,000 closures in 2020, according to a tracking by Coresight Research, with 55% to 60% of those situated in America’s malls. That would also mark a record — which was previously the more than 9,300 locations in 2019.

Coresight was earlier this year forecasting there could be more than 15,000 store closures announced by retailers in 2020.

A glut of vacant storefronts will leave landlords scrambling to fill those spaces or find new uses for their real estate. There are not many retailers still growing via bricks and mortar today. And if they are, many are looking to downsize to smaller shops.

In recent weeks, bankruptcy filings in retail have begun to mount. Coresight said it expects more liquidations, ticking up the closure tally. Department store chains Neiman Marcus, Stage Stores and J.C. Penney have filed for bankruptcy protection. So have the home goods chain Tuesday Morning and the apparel maker J.Crew. A number of these retailers will close some stores and begin operating again, but Stage Stores has warned it may need to shutter all of its locations if it doesn’t find a buyer.

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The Mall of America hasn’t paid its mortgage in two months

The biggest shopping center in the country, The Mall of America, has missed two months of payments on its $1.4 billion mortgage.

Retailers aren’t the only ones struggling to pay the bills.

The biggest shopping center in the country, The Mall of America, has missed two months of payments on its $1.4 billion mortgage, a sign of just how much retail real estate owners are reeling during the coronavirus pandemic.

The mall, operated by private developers Triple Five Group, skipped mortgage payments in April and May, according to Trepp, a New York-based research firm that tracks the commercial mortgage-backed securities, or CMBS, market.

A spokesperson for Triple Five Group did not immediately respond to CNBC’s request for comment.

Mall of America closed its doors because of the Covid-19 crisis on March 17. It has now notified notified Wells Fargo, the master servicer that is overseeing its mortgage, of the “hardships” it faces. But it is not clear if Triple Five Group will seek forbearance on its loan.

Mall of America, located in Bloomington, Minnesota, is planning to reopen its retail stores on June 1, according to its website.

“Next to hotel owners, retailers have been the hardest hit by the Covid-19 crisis,” Manus Clancy, Trepp senior managing director, told CNBC. “The percentage of delinquent retail loans has already surpassed the highest percentage reached during the financial crisis and could be headed higher.”

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Bankrupted JC Penney plans to spin its properties into separate real estate company

A piece of J.C. Penney’s proposal to emerge from bankruptcy includes spinning its real estate into a publicly traded real estate investment trust.

As part of a plan filed with the bankruptcy court, Penney would reorganize into a new retailer (“JCP”), along with a REIT that would collect rent checks from the retail business. Court documents say as much as a 35% stake in the newly created REIT could be sold to a third-party investor to raise cash, or to provide additional funding for the REIT.

Weighed down by a heavy debt load of more than $4 billion and hit hard by the coronavirus pandemic, Penney filed for Chapter 11 bankruptcy protection Friday evening. Some are now questioning if the department store chain, which has been around for more than a century, should still operate. It has been stuck in a sales slump for years. The department store industry as a whole has also been on the demise, with people shifting their spending away from the mall. When Penney filed, it still operated roughly 850 locations at malls across the country.

This would not be the first time a struggling department store operator has relied on its real estate value to come up with liquidity. Sears in 2015 spun off roughly 250 properties to form the REIT Seritage Growth Properties.

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Loaded with Cash, Real Estate Buyers Wait for Sellers to Crack

Private equity firms across the globe hold an estimated $328 billion in dry powder for real estate deployment.

(Bloomberg)—The world’s biggest real estate investors are sitting on piles of cash, preparing for once-in-a-lifetime opportunities created by the pandemic.

With economies around the world sputtering, commercial real estate prices are expected to come down. How much they’ll fall is the key question.

Sellers are currently willing to concede discounts of around 5%, while bidders are hoping for about 20% off pre-pandemic prices, said Charles Hewlett, managing director at Rclco Real Estate Advisors. That estimated gap, which is likely wider in specific cases, has put a freeze on deals.

“The mantra for anything that hasn’t gotten started is: delay, defer and, in many cases, renegotiate,” Hewlett said. “If I’m going to have vintage May 2020 on my books, I want to be able to demonstrate to my investors that I got an exceptionally good deal.”

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Mall owner Brookfield will spend $5 billion to save retailers

Property and mall owner Brookfield Asset Management is targeting spending $5 billion to help struggling retailers, as the retail industry reels from the coronavirus pandemic, the company announced Thursday.

The company said its retail revitalization program, backed by Brookfield and its institutional partners, will focus on taking noncontrolling stakes in retailers to assist them with their capital needs during this time of “dislocation.”

The announcement comes as mall-based retail has been one of the hardest hit industries during the Covid-19 crisis. Thousands of retailers’ stores have been shut since mid-March, to try to help curb the spread of the virus. Two retailers — J.Crew and Neiman Marcus — filed for Chapter 11 bankruptcy protection this week. More retail bankruptcies, and many more permanent store closures, are expected to be looming.

Brookfield has already bet big on retail. It acquired the remaining stake it did not already own in U.S. mall owner General Growth Properties in 2018, taking control of properties such as Fashion Show in Las Vegas, and Oakbrook Center in Illinois. GGP had earlier in 2016 teamed up with the biggest U.S. mall owner, Simon Property Group, to buy the embattled teen apparel retailer Aeropostale. And just earlier this year, Brookfield, Simon and Authentic Brands Group acquired the clothing chain Forever 21 out of bankruptcy court.

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With 100,000 stores set to close by 2025, mall owners face this legal hurdle next

UBS is expecting 100,000 stores to permanently shut between now and the end of 2025.

Mall and shopping center owners around the country are getting ready to come face to face with a major legal hurdle: Co-tenancy clauses.

The coronavirus pandemic will accelerate the rate of permanent retail store closures, as sales shrink close to nothing with many shops temporarily shut to try to halt the spread of Covid-19. Liquidity also is drying up and finances are being squeezed. UBS is expecting there will be 100,000 stores permanently shut between now and the end of 2025.

Meantime, online sales as a percentage of total retail sales in the U.S. are expected to grow to 25% from 15% over that same timeframe, UBS analyst Michael Lasser said.

With another wave of department store closures inevitably looming, and some chains potentially filing for bankruptcy, landlords’ phones will likely be ringing — with retailers on the other line demanding rent reductions or outright saying, “I’m leaving your mall.”

Here’s how co-tenancy clauses work, on a basic level: They are typically built into the leases of the specialty tenants, like a Gap or an AT&T store, in the middle of a mall, or the shops situated along a grocery-anchored shopping centers, like a Big Lots or a TJ Maxx.

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McDonald’s Long-Term Real Estate Structure Provides It with a Cushion Even in a Severe Downturn

McDonald’s is likely to take a big hit on income in 2020. But owning its real estate empire should be a big help.

The Golden Arches have lost some of their sales sheen during the coronavirus pandemic, but the real estate strategy of McDonald’s Corp. might serve up a bit of respite from an economic grilling.

McDonald’s reported April 8 that overall same-store sales dropped 22.2 percent in March, with U.S. same-store sales falling 13.4 percent. Globally, three-fourths of the chain’s restaurants are still open. But they’re depending largely on drive-through and delivery sales, as most dining rooms are closed. Foot traffic at McDonald’s restaurants in the U.S. plummeted 32.1 percent in March, according to Placer.ai, whose platform tracks retail activity.

Despite those negative figures, McDonald’s real estate strategy remains a positive—a positive that could help it navigate choppy economic waters. However, McDonald’s is already grappling with rent deferrals for franchisees and, according to one projection, could see global income from rent take a $800 million dive in 2020.

Billions of dollars in rent

McDonald’s real estate strategy centers on owning much of the property—land and buildings—for corporate-controlled and franchisee-controlled restaurants. Last year, McDonald’s collected $7.5 billion in rent from franchisees, which operate more than 90 percent of the company’s restaurants around the world. That $7.5 billion represented a little over one-third of corporate revenue in 2019.

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A Short Bet Against Malls Fuels 48% Gain for One Long-Time Bear

MP Securitized Credit Partners posted a net return of 47.9 percent in March in its $162-million flagship vehicle.

(Bloomberg)—A hedge fund’s long-held bearish bet on the demise of America’s malls sparked its biggest gains ever last month as the Covid-19 pandemic shut down much of the U.S. economy, threatening commercial landlords.

MP Securitized Credit Partners returned a net 47.9% in March in its $162 million flagship vehicle at a time when many other firms that bet on structured credit have nursed big losses. Its wagers against the derivatives index known as CMBX 6, which is heavily exposed to mall debt, helped to offset declines on the fund’s holdings of commercial mortgage-backed securities, according to an investor letter seen by Bloomberg.

Marc Rosenthal, the firm’s chief investment officer, declined to comment beyond the letter.

Rosenthal and Noelle Savarese co-founded MP in 2008 as a unit of FrontPoint Partners, the hedge fund where Steve Eisman made bearish bets on subprime mortgage bonds featured in Michael Lewis’s “The Big Short.” At the time, the MP founders focused on distressed mortgage-backed securities.

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Shopping center owner Kimco is trying to help its smaller tenants pay rent, stay in business

Kimco Realty has started piloting a tenant assistance program to help its tenants find and apply for federal and state loans to aid their businesses during the coronavirus pandemic.

A major shopping center owner in the U.S. has taken matters into its own hands to try to help small business owners get access to funds from the federal government and from states that can help them pay rent.

Kimco Realty, which owns and operates roughly 400 strip centers typically anchored by grocery stores across the country, has started piloting a tenant assistance program, or TAP. Its goal is to help its tenants find and apply for federal and state loans. Those loans are meant to aid smaller businesses in surviving the disruption caused by the coronavirus pandemic.

Currently, the TAP pilot is in California and Florida. Kimco said it plans to roll out the program to other states over the next few days.

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