Analysis: Landlords Having Tough Time Unloading Underperforming Malls

Analysis: Landlords Having Tough Time Unloading Underperforming Malls

ABI Bankruptcy Brief

June 14, 2018

ABI Bankruptcy Brief

Analysis: Landlords Having Tough Time Unloading Underperforming Malls

As they battle the rise of e-commerce, U.S. mall owners are trying to clear their books of fading centers so they can focus on the most profitable ones, according to a Bloomberg News analysis. That’s proving difficult, with just a shallow pool of investors who are willing to take on a declining mall and even fewer who would pay what the landlords want. Only about $3 billion of retail real estate changed hands in April, a 27 percent drop from a year earlier and the lowest monthly tally since February 2013, according to the latest data from Real Capital Analytics Inc. Mall giants such as Simon Property Group Inc. and GGP Inc. are spending billions to update their centers, adding experiences that can’t be found online and reinventing the cavernous spaces left behind by failing department stores. But there’s a growing set of lower-tier malls that have slid too far toward irrelevance to be worth a costly overhaul. “It’s a tough environment. I don’t think anybody really anticipated the decline of the department store to happen as quickly as it did,” said Joe Coradino, chief executive officer of Pennsylvania Real Estate Investment Trust, which owns 21 malls in the Mid-Atlantic region.
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Occupancy issues are at the heart of many significant retail cases, as detailed in the ABI publication Retail and Office Bankruptcy: Landlord/Tenant Rights, available at the ABI Store.


U.S. Retail Sales Increased in May

The Commerce Department said today that sales at U.S. retailers rose 0.8 percent from a month earlier to $502 billion, the biggest one-month jump since November, the Wall Street Journal reported. Americans boosted spending on cars, building supplies, sporting goods, health care products, clothing and other goods. Excluding auto sales, which tend to fluctuate significantly month to month, retail spending grew 0.9 percent.
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Be sure to check out today's Chart of the Day.


Commentary: If You Want to Catch a Liar, Get It in Writing*

The U.S. Supreme Court's decision in Lamar, Archer & Cofrin, LLP v. Appling (16-1215) earlier this month could shine a surprising light on future prosecutions, according to a Bloomberg News commentary by Prof. Stephen L. Carter of Yale University. Scott Appling, who had filed for chapter 7 bankruptcy, faced a lawsuit from Lamar, Archer, a law firm that had provided him with legal services. Before declaring bankruptcy, Appling had fallen behind in paying the firm’s invoices but had promised to catch up when he received a pending tax refund. When he got his refund (which was smaller than he had led Lamar, Archer to believe), Appling used the money for other expenses — and told the firm that it hadn’t yet arrived. The firm ultimately sued for its money. After Appling filed for bankruptcy, the firm proceeded against him under a provision of federal law that basically provides that one cannot discharge in bankruptcy a debt arising from fraud or false representation. The statute contains an exception, however, for “a statement respecting the debtor’s ... financial condition.” A statement of that kind will save a debt from discharge only if it was made in writing. According to a unanimous Supreme Court, that exception protects Appling from the law firm’s suit. Justice Sotomayor writes in the opinion that wise creditors can protect their interests by insisting “that the representations respecting the debtor’s financial condition on which they rely in extending money, property, services, or credit are made in writing.” It’s perfectly reasonable to require wise prosecutors to do the same, according to the commentary.
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*The views expressed in this commentary are from the author/publication cited, are meant for informative purposes only, and are not an official position of ABI.

For Bill Rochelle's in-depth analysis of the Supreme Court's decision in Lamar, Archer & Cofrin, LLP v. Appling (16-1215), please click here.

Rochelle will be moderating a special podcast on In re Appling with guests Bankruptcy Judge Michael Kaplan (D. N.J.; Trenton) and ABI President-Elect Alane Becket of Becket and Lee (Malvern, Pa.). The podcast will be available next week, with notice being given in the ABI Headlines and Bankruptcy Brief.

CFPB Goes Back to Drawing Board on Payday Rule

The Consumer Financial Protection Bureau is expected to go back to the drawing board on its payday lending rulemaking after a federal court rebuffed the agency's attempt to stop the small-dollar rule from going into effect, the American Banker reported. On Tuesday, U.S. District Judge Lee Yeakel denied a request by acting CFPB Director Mick Mulvaney to halt the rule's effective date, set for August 2019. Mulvaney had previously sided with two industry trade groups that sued the CFPB in April to invalidate a rule that would be first to federally regulate payday lenders. Lawyers said that the CFPB is likely to propose a narrow rulemaking that would only extend the regulation's compliance date, which would give the agency more time to promulgate an entirely new payday rule.
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Commentary: Private Equity Dives into Litigation as Latest Investment*

Private equity and hedge funds have found a new way to get richer: Financing lawsuits in exchange for a cut of the winnings, according to a Houston Chronicle analysis. The investment funds, which have raised billions of dollars to funnel into promising cases, have become a rich source of cash for lawyers to acquire cases, buy advertising, recruit clients and underwrite litigation expenses. If the lawyers win, private equity backers can pocket up to six times their initial investments, amounting to as much as 50 percent of a settlement or trial verdict. This large and growing pool of money has opened the door for lawyers to gamble on big cases against big companies involving thousands of victims and millions of dollars in damages, but it also raises questions of whether lawyers will act in the best interest of clients or their financiers, who might prefer a quick settlement over a lengthy trial. In addition, the cuts taken by private equity and hedge funds can be so high that clients who win big awards on paper may end up with as little as 10 cents on dollar, legal experts say. "It’s like the white-collar version of payday loans," said Houston lawyer John Zavitsanos. Litigation finance has been around for more than a decade, but only in recent years has it taken off as private equity and hedge funds seek better returns beyond stock, bond and commodity markets, according to legal and finance specialists. By some estimates, more than one-third of U.S. law firms used litigation financing in 2017, up from 7 percent four years earlier, while private equity and hedge fund investments in lawsuits have surged to about $30 billion from $1 billion in 2011.
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*The views expressed in this commentary are from the author/publication cited, are meant for informative purposes only, and are not an official position of ABI.

Latest ABI Podcast Explores Veterans' Affairs Task Force, Ways to Participate

ABI Executive Director Sam Gerdano talks with ABI President Ted Gavin of Gavin/Solmonese LLC (Wilmington, Del.) and John Ames of Bingham Greenebaum Doll LLP (Louisville, Ky.), a former ABI President, about ABI's new Veterans' Affairs Task Force. Gavin announced the formation of the Task Force in his speech when he became ABI President at the 2018 Annual Spring Meeting in April. Providing more details on the formation of the Task Force (which also includes former ABI President John Penn of Perkins Coie (Dallas) and former ABI Resident Scholar Jack Williams and Susan Seabury of Baker Tilly (Atlanta)) Gavin and Ames discuss what the Task Force aims to accomplish — and ways that ABI members can help. Click here to listen.

Commentary: Big Banks’ Regulatory Bonanza Is Not as Advertised*

In the early days of the Trump administration, expectations were high for sweeping financial deregulation that would be a boon to bankers. While much of that agenda has been realized, large banks have reason to be disappointed, according to a Wall Street Journal commentary. This week marks the first anniversary of a U.S. Treasury Department report that laid out the administration’s deregulatory vision for banks and credit unions. One year on, the biggest winners are small and mid-sized lenders, plus non-bank financial institutions that effectively compete with the largest lenders but are under far less scrutiny, says Karen Petrou, an analyst at Federal Financial Analytics. The most significant change was a bill signed by the president that raised the threshold at which banks must submit to annual Federal Reserve stress testing, to $250 billion of total assets from $50 billion. This was a major change in the Dodd-Frank regime that will be a boon to around two dozen mid-sized banks and clears the way for more mergers and acquisitions among smaller banks. But other actions actually have cut against the biggest banks. Most notably, the Federal Reserve’s proposed changes to the stress tests introduce a new capital buffer that may raise capital requirements on investment banks like Goldman Sachs and Morgan Stanley while making the process less predictable for all of the largest banks.
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*The views expressed in this commentary are from the author/publication cited, are meant for informative purposes only, and are not an official position of ABI.

June 30 Nomination Deadline Approaching for ABI’s 2018 Class of “40 Under 40”

ABI is accepting nominations for ABI's “40 Under 40” program until June 30. This program recognizes outstanding young insolvency professionals who are driven by success, motivated by challenges and are role models for their peers. If you are, or know of, a dynamic insolvency professional who is committed to growth and excellence both professionally and in your community, this is one opportunity not to be missed! Visit the website for additional details on nominations and applications.

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New on ABI's Bankruptcy Blog Exchange: A Perspective About Compliance Merits of AI

A recent blog post details an interview with Ellen Zimiles, global head of investigations and compliance at Navigant Consulting, as she shares what she's learned about testing and implementing AI in compliance departments, filing defensive SARs, and hiring the right people to maintain an AI system.

To read more on this blog and all others on the ABI Blog Exchange, please click here.


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