%1

The U.S. division of French beauty products maker L’Occitane International SA has filed for bankruptcy, behind on $15 million in rent and seeking to shed lease obligations after the COVID-19 pandemic cut into sales, WSJ Pro Bankruptcy reported. The U.S. unit L’Occitane Inc., which operates 166 boutiques in 36 states and Puerto Rico, filed a chapter 11 petition Tuesday in the U.S. Bankruptcy Court in Trenton, N.J., for the purpose of relieving itself of what it called increasingly untenable lease obligations. Like other retailers, L’Occitane has been hurt by the pandemic, which has made consumers less willing to shop in person, according to a declaration filed in bankruptcy court by Yann Tanini, regional managing director for L’Occitane. The company filed court papers seeking to reject 29 “burdensome” lease agreements and exit from those locations, where it said its rent obligations “no longer reflect the market.” L’Occitane joins the ranks of a growing number of retailers, from huge department-store chains such as J.C. Penney Co. to boutiques like Sur La Table Inc., to have filed for chapter 11 during the pandemic. Even before the onset of COVID-19, L’Occitane experienced a decline in sales at its bricks-and-mortar stores, while revenue from e-commerce increased, but the pandemic intensified the trend. The pandemic has forced L’Occitane to “more aggressively address the rapidly widening gulf between its brick-and-mortar retail revenue and its substantial lease obligations, which no longer reflect the market,” Mr. Tanini said. L’Occitane tried to renegotiate lease terms with its landlords in hopes of completing an out-of-court restructuring. Landlords were reluctant to offer concessions sufficient for the company to remain viable, according to Mr. Tanini.

U.S. commercial landlords have granted billions of dollars of rent relief to struggling storefronts as property owners strive to keep falling occupancy rates from triggering more severe financial consequences, WSJ Pro Bankruptcy reported. With many commercial property tenants in dire financial straits due to the economic fallout from the coronavirus pandemic, landlords are reluctantly granting concessions on lease payments, lengthening payment terms, extending or shortening leases, lowering rents permanently and even forgiving past-due payments, according to real-estate advisers, property managers and lawyers. By providing the breaks following negotiations, landlords are hoping to avoid pandemic-induced tenant departures, keep properties occupied and rent payments flowing, while avoiding the larger losses that can come from evictions and increased vacancies in their shopping centers and malls. They are fearful of triggering lease provisions that kick in when key anchor retailers or a certain number of tenants leave a certain property, cutting rents for those that remain. Retail vacancies have been steadily on the rise and are expected to significantly increase. The average retail vacancy rate was around 4.5% going into the pandemic and estimated to end 2020 at 5.3% to 5.5% but is projected to increase to between 5.8% and 6.2% by the end of 2021, according to data from real-estate analytics company CoStar Group Inc. Before the pandemic, average retail rents were growing at more than 2% annually, according to CoStar. CoStar now expects rents to decline by anywhere from 1% to 3% year-over-year in 2021. A record-breaking number of major retailers — more than 60 — filed for bankruptcy in the U.S. in 2020. Major retailers announced plans to close more than 12,200 stores last year, according to CoStar. These closures will empty an estimated total of 159 million square feet of retail space, out of roughly 11 billion square feet available nationally, CoStar said. “What’s happening in the market is most definitely going to cause an overall devaluation of real estate across the country,” said Matthew Bordwin, principal and managing director at real-estate brokerage Keen-Summit Capital Partners LLC. Katharine Battaia Clark, a Dallas-based partner at law firm Thompson Coburn LLP, said on a panel during ABI's Winter Leadership Conference last month that she has seen “really aggressive negotiating tactics” being used by consultants hired on behalf of bankrupt tenants. The tenants’ position has been to “accept our terms or take a hike, we’ll reject your lease and then you’ll be an unsecured creditor and good luck to you, and you’ll have an empty space,” she said. Read more. 

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. 

Children’s arcade and pizza chain Chuck E. Cheese failed to persuade a bankruptcy judge to delay or cut rent obligations due to COVID-19-related restrictions on the business, WSJ Pro Bankruptcy reported. The ruling yesterday from Judge Marvin Isgur of the U.S. Bankruptcy Court in Houston sounds a warning note for retailers and restaurants trying to survive a pandemic-driven drop in revenue, while comforting commercial landlords trying to do the same. The question of rent cuts and delays for businesses hurt by COVID-19 has come up in other bankruptcy cases, including that of Ruby Tuesday Inc. which like Chuck E. Cheese resorted to chapter 11 protection as fear of infection and government regulations kept customers away. Judge Isgur said that U.S. bankruptcy laws limit how much help he can extend to Chuck E. Cheese when it comes to the rent obligations owed on six restaurants in North Carolina, Washington and California. According to the ruling, varying degrees of health restrictions constricted the business, which is built around giving children a place to play as part of family dining. However, the Bankruptcy Code only allows the company to delay rent payments for 60 days, and nothing in state law or the terms of the leases changes that, according to the ruling. Leases are governed by their own provisions and by the laws of the states where the restaurant is located.