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More Retailers and Landlords Squaring Off Over Rent

In the early stages of the pandemic, most landlords and retailers found common ground in their financial stress. But those bonds are weakening as the pandemic drags on.

NEW YORK – As the pandemic presses on, more lenders are expecting delinquent mall owners to meet their payment obligations.

In the early days of the pandemic last spring, lenders showed some willingness to allow rent deferrals or other concessions for mall owners facing cash flow issues. But as store closures accelerated, a high number of missed payments is testing lenders’ patience and spurring them to crack down on delinquencies, The Wall Street Journal reports.

Many landlords continue to struggle with the coronavirus’ sweeping impact on in-store retail. Store closures in malls have accelerated since stay-at-home orders were issued in the spring.

As a result, lenders are growing more concerned about a quick drop in retail property values, and The Wall Street Journal estimates a possible plunge of up to 75% nationwide. Faced with those kinds of unknowns, more lenders are, in some extreme cases, moving ahead on foreclosure sales to recoup some of the money owed.

For example, lenders to Dadeland Mall’s Saks Fifth Avenue in Miami are moving to foreclose on the property owner for failing to pay its mortgage since April. According to The Wall Street Journal, the mall’s $846 million mortgage is securitized with collateral from 10 Saks stores and 24 Lord & Taylor stores nationwide. That means the lender could seize those other properties through the foreclosure process.

Mall owners, in turn, are directing their fight toward their tenants and filing lawsuits against retailers who haven’t paid rent. In some cases, those tenants are then asking the courts to allow them to break their leases.

“Every step of the way, everyone is fighting each other to see who will take the loss,” Jim Costello, senior vice president of research firm Real Capital Analytics says.

Meanwhile, some malls hope to reinvent themselves and find profits in other ways. some owners are even looking at ways to convert malls to residential buildings or warehouses.

But conversion plans worry lenders too: If too many malls convert to residential, there could be a dearth of in-demand shopping areas if consumers return to retail after the pandemic passes, according to research from Barclays PLC.

Source: “Lenders Cracking Down on Mall Owners Behind on the Mortgage,” The Wall Street Journal (Oct. 27, 2020) [Log-in required.]

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