With billions of dollars in lost payments at stake, retail landlords have been working aggressively to find some resolution with struggling tenants.
From Gap to Staples to Burlington Stores, retailers large and small have stopped paying rent amid the coronavirus pandemic. With April and May rent already past due, industry watchers worry that a glut of vacant storefronts is on the horizon — or even a commercial mortgage crisis.
"If we are unable to renegotiate the leases and continue to suspend rent payments, the landlords under a majority of the leases for our stores in the United States could allege that we are in default," the company said in a statement.Even with some malls opening back up after weeks of lockdown, 20 or so states remain shuttered. No shoppers means no sales and no revenue with which to pay rent.
Story continuesCapital One and Ally Financial are among the 13 major banks whose credit ratings were just downgraded to negative by S&P Global Ratings because of the large tranches of commercial real estate and consumer loans they hold. "Everybody who is touching the retail rental stream is having to make some modification or deal in order to survive," said Eric Greenberg, a real estate partner at the Seyfarth law firm.
In April, the Federal Reserve stepped in to support lenders by reviving a financial crisis-era tool called the Term Asset-Backed Securities Loan Facility and extending it to include commercial rent. But that can go only so far as the pandemic accelerates the fall of retailers who came into the health crisis with loads of debt, little cash and business models that are increasingly irrelevant.
When a retailer goes into bankruptcy or defaults on its lease payments, it leaves few options for landlords and lenders outside of foreclosure. In that case, the bank takes over the empty property and is responsible for selling it or finding a new tenant. But with few buyers on the market for an empty department store, selling will prove to be difficult once the virus is contained, according to commercial real estate analysts.
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