Struggling Retailers Rack Up $52 Billion in Missed Rent
Struggling Retailers Rack Up $52 Billion in Missed Rent
ABI Bankruptcy Brief
November 19, 2020
NEWS AND ANALYSIS
Struggling Retailers Rack Up $52 Billion in Missed Rent
Eight months into the pandemic, clothing stores, restaurants, gyms and other businesses find themselves in a $52 billion hole, Bloomberg News reported. That’s the total amount of retail rent that’s been missed since April, according to CoStar Group Inc. While some of the overhang has since been paid back, the remainder will be a drag on merchants as they try to rebuild and landlords demand their money. In some cases, the unpaid balances could drive them into bankruptcy. “You’re going to have big bubbles that are going to be hitting next year or even in the fourth quarter,” said Andy Graiser, co-president of A&G Real Estate Partners, an advisory firm. “I’m not sure if they are going to be able to make those payments in addition to their existing rent.” Overdue rent compounds the problems these companies have faced this year, including lost sales during shutdowns, consumers’ reluctance to return to stores and restaurants, and the long-running migration of shoppers from brick-and-mortar locations to online venues. CoStar estimated missed retail rent, including payments from store chains, restaurants, gyms and bars, in each month using its own data, industry statistics and landlords’ public reporting. The figures don’t account for any back rent that may have been repaid in subsequent months. In all, retailers paid $146 billion in rent from April to November, CoStar said. By Graiser’s tally, the group broadly owes an average of two to four months’ rent from earlier this year, but he expects making good on those debts will be hard because sales probably won’t return to what he considers normal levels next year. TIAA Real Estate Account, run by the giant Teachers Insurance and Annuity Association of America, said in a Nov. 10 filing it received more than 1,000 requests from tenants for rent relief, primarily among retailers, with most asking for deferrals of less than six months. So far, the amount of rent collected from retailers climbed from 54 percent at the end of April to 86 percent this month, according to CoStar. Malls have fared worse, with only 79 percent of rent due this month received. That makes the situation critical for landlords, too.
Don't miss "A Catch-22: Dilemmas for Landlords in the Era of COVID-19" at ABI's Virtual Winter Leadership Conference Dec. 3-4. The panelists will be exploring the myriad legal conundrums landlords have been facing in bankruptcy cases across the country since the COVID-19 pandemic took hold. Click here to register.
President-Elect Biden Feels Congressional Pressure to Act on Student Loan Forgiveness
Democratic leaders in Congress are pushing President-Elect Joe Biden to take quick action on canceling student loan debt with an executive order to stimulate the economy and provide relief to struggling borrowers, The Hill reported. Biden has expressed interest in forgiving some amount of education debt, a move that would undoubtedly trigger political backlash, perhaps on both sides of the aisle. There are also questions among economists about how much of a boost to consumer spending would result from swift action during a downturn. Progressives such as Sen. Elizabeth Warren (D-Mass.) have long called for student debt cancellation as a necessary plank of any economic recovery. More than 40 percent of U.S. adults who attended college — about 30 percent of all U.S. adults — had at least some student debt last year, according to a survey released in May by the Federal Reserve. Nearly 30 percent of those who have student loans also deferred their payments in 2019. Warren, who alongside Senate Minority Leader Charles Schumer (D-N.Y.) is calling on Biden to cancel $50,000 of student debt through executive fiat, upped the pressure this week by characterizing student loan cancellation as the “single biggest stimulus we could add to the economy.” Biden has not gone quite that far, saying this week that he supported canceling $10,000 of student debt through legislative means as part of a broader proposal to make community college free, doubling Pell grants and offering free public education to people earning under $125,000 a year. But a legislative path to lowering student debt is unlikely if Republicans maintain control of the Senate after two runoff elections in Georgia scheduled for Jan. 5.
U.S. Unemployment Increased Last Week Amid COVID-19 Surge
The number of Americans filing first-time claims for jobless benefits rose last week, likely because new business restrictions to control spiraling COVID-19 infections unleashed a fresh wave of layoffs, which could further slow the labor market recovery, Reuters reported. The weekly unemployment claims report released today from the Labor Department also showed at least 20.3 million people on unemployment benefits at the end of October, threatening the recovery from the worst recession since the Great Depression. About 12 million people will lose benefits next month when two government-funded programs expire a day after Christmas, according to a study released yesterday by The Century Foundation, a public policy research group. Initial claims for state unemployment benefits increased 31,000 to a seasonally adjusted 742,000 for the week ended Nov. 14. Economists polled by Reuters had forecast 707,000 applications for the latest week. Unadjusted claims rose 18,344 to 743,460 last week. Economists prefer the unadjusted number because of earlier difficulties adjusting the claims data for seasonal fluctuations due to the economic shock caused by the pandemic. Including a government-funded program for the self-employed, gig workers and others who do not qualify for the regular state unemployment programs, 1.1 million people filed claims last week.
Banks May Be Office Landlords’ New Problem Tenants
Tech companies have talked the loudest about shifting away from the office, but it is banks that are putting their money where their mouth is, the Wall Street Journal reported. Taking up of new office space in Europe was weak over the late summer. Leasing activity halved during the third quarter compared with the same period of 2019, according to data from real-estate company JLL. In the U.S., the decline was even sharper at 55 percent. The physical constraints of lockdowns made it hard for companies to get out and look at properties, and firms are reluctant to take on extra space until they understand how the shift to home working will play out and what shape the economy is in. Already, though, differences are emerging between industries. Public-sector tenants have been a bright spot for real estate owners. Less exposed to the business cycle, they have doubled their usual share of overall leasing activity in Europe since the pandemic began, data from real estate services giant CBRE shows. Tech companies’ share was 17.9 percent, in line with the average between 2012 and 2019. (Subscription required.)
Tourism, Engine for N.Y.C. Economy, May Not Fully Recover Until 2025
The pandemic triggered a free-fall in tourism to New York City, one of the world’s most popular destinations. A new forecast predicts that the influx of tourists will not fully rebound for at least four years, a somber assessment that reflects one of the biggest challenges to the city’s recovery, the New York Times reported. The surge in tourism in recent years has been a vital pillar of the city’s economy, supporting hundreds of thousands of workers across a range of industries, from hotels to restaurants to Broadway. New York drew a record 66.6 million visitors in 2019 and was on pace for even more this year, according to the forecast released on Monday by the city’s tourism promotion agency, NYC & Company. Now the city is likely to reach just one-third of last year’s total. The collapse of tourism has been a key reason that New York’s economy has been hit harder than most other major American cities. Hundreds of restaurants, many of which rely on out-of-town visitors, and several large hotels have closed for good. Before the shutdown in March, the hospitality industry provided as many as 400,000 jobs and drew $46 billion in annual spending. Seven months later, at the end of October, more than 1.3 million residents were collecting unemployment benefits: The city’s unemployment rate is 14.1 percent, more than double the national rate.
U.S. Home Sales Rose to 14-Year High in October
Sales of previously owned homes rose to a new 14-year high in October while median home prices again hit new highs, the Wall Street Journal reported. Existing-home sales rose 4.3 percent in October from September to a seasonally adjusted annual rate of 6.85 million, the highest level since February 2006, the National Association of Realtors said Thursday. The October sales marked a 26.6 percent increase from a year earlier. Home prices have climbed in recent months as low interest rates have spurred strong demand, especially for expensive homes, while the supply of homes on the market remains constrained. The median existing-home price rose 15.5 percent from a year earlier to $313,000, a record high nominally and adjusted for inflation, NAR said. (Subscription required.)
Proposed Amendments to Bankruptcy Rules and Forms Published for Public Comment
On June 23, 2020, the Judicial Conference Committee on Rules of Practice and Procedure (Standing Committee) approved the publication of proposed amendments to the following:
- Appellate Rule 25;
- Bankruptcy Restyled Rules Parts I and II; Rules 1007, 1020, 2009, 2012, 2015, 3002, 3010, 3011, 3014, 3016, 3017.1, 3017.2 (new), 3018, 3019, 5005, 7004, and 8023; and Official Forms 101, 122B, 201, 309E-1, 309E-2, 309F-1, 309F-2, 314, 315, and 425A;
- Civil Rule 12 and Supplemental Rules for Social Security Review Actions Under 42 U.S.C. § 405(g); and
- Criminal Rule 16.
The comment period is open from Aug. 14, 2020, to Feb. 16, 2021. For information on the proposed amendments and instructions on how to submit comments, please click here.
Key Issues Facing the Profession in 2021 to Be Addressed at ABI’s Winter Leadership Conference Dec. 3-4
Experts will speak on key issues facing the profession now and heading into 2021 at ABI’s Winter Leadership Conference. Thirteen plenary and concurrent sessions will be held on the afternoons of December 3 and 4, and will include ample networking on both days. Attendees will be able to take part in the conference from the comfort of their home or office while earning up to 8.75/10.5 hours of CLE/CPE credit, including 1.25/1.5 hours of ethics. Sessions at the Winter Leadership Conference include:
• Hot Topics with Bill Rochelle
• Anatomy of a Pharmaceutical Bankruptcy Case
• Money Talks: Getting Retained and Paid (Ethically) by the Bankruptcy Estate
• Witness Preparation: A Roundtable Discussion
• Peace Bridge, or Bridge of Sighs: Cross-Border Mediation of Insolvency-Related Disputes
• “Too Many Hats”: The Peculiar Problems and Challenges that Arise When an Equity Sponsor/Secured Lender Is DIP Lender/Stalking-Horse Buyer in a Chapter 11 Case
• A Catch-22: Dilemmas for Landlords in the Era of COVID-19
• Judicial Round-and-Round
• But I’m Afraid of Needles: The Sale of Health Care Assets, sponsored by BakerHostetler
• Consumer Commission Report: Top 10 Wish List
• Opportunities and Challenges Associated with Early-in-the-Case § 363 Sales
• Do This, Not That: Ethics Roundtable
• Navigating Distressed Investing, Sales and Technology: Protecting Your Sale Process, Your Investments and Your Hide
The ABI Endowment will also be holding a special virtual wine tasting event on the evening of December 2 to benefit The Anthony H.N. Schnelling Endowment Fund. Sponsored by Cozen O'Connor, Polsinelli and SSG Capital Advisors LLC, the event features four premium small-batch wines chosen by America’s first Master Sommelier Eddie Osterland.
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New on ABI’s Bankruptcy Blog Exchange: Is GSE reform dead on arrival under Biden?
The Trump administration has moved forward on a plan to privatize Fannie Mae and Freddie Mac, but Joe Biden appointees could take steps to slow or stop their release from conservatorship, according to a recent blog post.
To read more on this blog and all others on the ABI Blog Exchange, please click here.