Western Real Estate Business magazine covers the multifamily, retail, office, healthcare, industrial and hospitality sectors in the Western United States.
Issue link: https://westernrealestatebusiness.epubxp.com/i/566807
36 • September 2015 • Western Real Estate Business www.REBusinessOnline.com M any well-known retailers fled bankruptcy cases in late 2014 and into 2015. A number of them are on their way to liquidation or on the brink of reaching that point. This will present tremendous chal- lenges to the commercial retail sector. These added vacancies may very well hamper the business ventures of land- lords throughout the country. Major mall operators may have to address ever-increasing vacancy rates in order to reduce costs and operating losses as bankruptcies continue. Some of the most notable bankrupt- cies of 2015 include RadioShack, Wet Seal, Delia and Deb Stores, Annie's Fabrics, Caché, Quizno's and Sbarro. Signifcant flings in 2014 included Coldwater Creek and Loehmann's. Many of these bankruptcy cases have resulted in liquidations of these com- panies, with the exceptions of Sbarro and Quizno's. Even more signifcant are the companies on the watch list. Landlords stand to lose a substantial number of retail tenants as a result of the store closings and liquidations that clearly lie ahead. There have been thousands of store closings and tens of thousands of jobs lost throughout the retail sector, which is not good news for commercial land- lords. At the same time, however, it is nothing compared to the avalanche of store closings that will arise if the companies that are on the watch list fle their bankruptcy cases or close a signifcant number of stores. Com- mercial landlords will not readily re- place these tenants, and the resulting loss in foot trafc in the malls around the United States will signifcantly af- fect their business. Even companies that were believed to be healthy and proftable have re- cently announced signifcant store closings. Gap recently announced it was closing 175 of its 675 stores in North America, which will include 140 stores that will close by next Janu- ary. The apparel company attributed the closings to a downturn in same- store sales and reduced trafc in a number of retail malls where its stores were located. On the plus side, ana- lysts noted retailers like H&M;, which are much less expensive and are able to bring new fashions to their stores with lightning speed, can fulfll much of this current market demand. Any retail company hoping to sur- vive in the long term must also cre- ate a signifcant internet presence and learn to drive sales from that impor- tant source. Landlords are going to be severely tested in their ability to keep important tenants as these bank- ruptcies and internet sales continue. The trends identifed above certainly are powerful forces working against landlords. They will need to be under- stood and overcome. Fortunately, there are a few steps landlords can take to protect them- selves against tenants that fle bank- ruptcy and attempt a store closure be- fore these events ever happen. Landlords should obtain a letter of credit (as opposed to a cash deposit) as a security deposit from the tenant and fle a proper unlawful detainer com- plaint if the tenant fails to pay rent. They can also obtain a waiver from the tenant of their right to relief from a lease termination under applicable law. Naturally, thorough credit checks on proposed tenants are always a wise idea. Landlords should also ob- tain guarantees where possible, and secure fnancial statements from pro- posed tenants and the guarantors — both initially and annually — after the lease commences. Though these steps will not guarantee the prevention of a vacancy, they can help landlords see their leases through completion. Victor Sahn, Partner, SulmeyerKupetz, a business, fnancial restructuring and litigation frm in Los Angeles. THE IMPACT OF BANKRUPTCY FILINGS ON THE COMMERCIAL REAL ESTATE SECTOR The economy might be leaps and bounds ahead of where it was a few years ago, but some well- known names are still struggling. For this reason, it's important for landlords to consider the effects a bankruptcy may have on their tenant roster. By Victor Sahn Location, Population & Cooperation California CITY OF Follow success…to Hemet. With available sites, growing population (over 80K), rising household incomes and the center of a trade area of over 150,000 customers, Hemet is right for you, right now! To join those who've found success in Hemet and learn more about opportunities in Inland Southern California, the Nation's most powerful market, contact the City of Hemet, Administration Office at 951-765-2301 or kaguilar@cityofhemet.org www.cityofhemet.org