Commercial Tenant Defaults start Rolling In — Structured Products and Collateral Pain To Follow

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Retail landlords are sending out thousands of default notices to tenants, a situation that could tip already-ailing retailers into bankruptcy or total collapse.

Department stores, restaurants, apparel merchants and specialty chains have been getting the notices as property owners who’ve gone unpaid for as long as three months lose patience, according to people with knowledge of the matter and court filings.

“The default letters from landlords are flying out the door,” said Andy Graiser, co-president of A&G Real Estate Partners, whose firm works with retailers and other commercial tenants. “It’s creating a real fear in the marketplace,” Graiser said.

Pressure from default notices and follow-up actions like locking up stores or terminating leases was cited in the bankruptcies of Modell’s Sporting Goods and Stage Stores Inc. Many chains stopped paying rent after the pandemic shuttered most U.S. stores, gambling that they could hold on to some cash before landlords demanded payment. Skipping Rent

Mall landlords received just a quarter of expected April rent payments

Source: CoStar Group

The stakes are enormous, and landlords are suffering, too. An estimated $7.4 billion in rent for April hasn’t been paid, or about 45% of what’s owed, according to data analyzed by CoStar Group.

“If the landlords don’t put a pause on their actions, you’re going to see more bankruptcies,” Graiser said.

To be sure, not every default letter is followed by a padlock on the door. In some cases, landlords are sending letters just to preserve their legal rights while they talk with their tenants.

Simon Property Group Inc. says it’s in discussions with merchants at its malls and trying to take into account their financial status, market position and the depth of their relationship. “The bottom line is, we do have a contract and we do expect to get paid,” Chief Executive Officer David Simon said during the company’s May 11 earnings call. No Payments

But the landlords are stuck with their own bills and bank debts to pay. By some measures, they’ve already been more than patient. Normally, they’d send out default notices as soon as 10 days after missed payments, rather than waiting weeks or months.


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