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The number of big office landlords defaulting on their loans is on the rise, fresh evidence that more developers believe that remote and hybrid work habits have permanently impaired the office market, the Wall Street Journal reported. Giant investment manager Brookfield Asset Management recently defaulted on a total of over $750 million in debt for a pair of 52-story towers in Los Angeles, according to a February securities filing. Real estate firm RXR is in talks with creditors to restructure debt on 61 Broadway, a 34-story tower in Manhattan’s financial district. Handing over the building to the lender is among the options under consideration. In another sign of distress, a venture of an investment manager affiliated with Related Cos. and BentallGreenOak is in similar debt-restructuring talks over a $150 million warehouse-to-office conversion project in Long Island City, N.Y., that hasn’t filled up as much space as expected. Five to 10 office towers each month join the list of properties at risk of defaulting because of low occupancy, expiring leases or maturing debt that would have to be refinanced at a higher rate, according to Manus Clancy, senior managing director with data firm Trepp Inc.

Brookfield Corp., parent of the largest office landlord in downtown Los Angeles, is defaulting on loans tied to two buildings rather than refinancing the debt as demand for space weakens in the center of the second-largest U.S. city, Bloomberg News reported. The two properties in default, part of a portfolio called Brookfield DTLA Fund Office Trust Investor, are the Gas Company Tower, with $465 million in loans, and the 777 Tower, with about $290 million in debt, according to a filing. The fund manager had warned in November that it may face foreclosure on properties. The company had the option to extend the maturity on the loans tied to the Gas Company Tower, but elected not to, according to its latest filing. It also elected not to get interest-rate protection that was required for loans for the 777 Tower property, which amounts to an event of default, the filing said. “We believe DTLA’s decision to default on these two assets increases the risk for the remaining loans in their portfolio,” Barclays Plc research analysts Lea Overby and Anuj Jain wrote in a note Tuesday. The values of comparable office buildings have broadly dropped, according to the Barclays analysts. Office vacancies have increased across the country since the pandemic made working remotely more routine. The vacancy rate in the Los Angeles central business district vacancy rate was 22.7% in the fourth quarter of 2022, according to a Jones Lang LaSalle Inc. report.

Bed Bath & Beyond Inc. could face tough negotiations with landlords and pay a high price to close out leases on hundreds of stores as the retailer attempts to downsize without the protection of bankruptcy, WSJ Pro Bankruptcy reported. A last-minute equity financing of up to $1 billion provided the company enough capital to pay down bank loans, which Bed Bath defaulted last month. But staying out of chapter 11 also means it loses negotiating leverage it would otherwise have in bankruptcy. One of the biggest drains on its limited resources may be landlords who may not let it off the hook without demanding much more money in rent than they would get if the retailer had filed for bankruptcy, according to some landlords and bankruptcy lawyers. “Rightsizing the footprint can be done outside bankruptcy, but it’s a lot more expensive,” said Bradford Sandler, a bankruptcy attorney at Pachulski, Stang, Ziehl & Jones LLP. The chapter 11 code gives companies certain tools to cap financial liabilities for breaking leases. Landlords owed money on leases are treated like other low-ranking creditors: they get what is left after the debtors pay top lenders and essential expenses. 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.

Pet-care retailer Independent Pet Partners Holdings LLC filed for bankruptcy, seeking to sell some of its stores to its top lenders, WSJ Pro Bankruptcy reported. The Woodbury, Minn.-based company filed for chapter 11 in the U.S. Bankruptcy Court in Wilmington, Del., on Sunday, blaming a sudden change in consumers’ pet food preference and the COVID-19 pandemic for lost revenue. Founded in 2017, the company has expanded its footprint by acquiring regional pet-store chains. The portfolio spans about 160 stores in a dozen states across the nation, under the banners Chuck & Don’s, Kriser’s Natural Pet, Natural Pawz and Loyal Companion, according to court papers. The company generated about $220 million in net sales in 2022. As of the petition date, it had about $182 million in assets and about $215 million in liabilities, according to the filing. It recorded about $111.4 million in secured debt. The company said its focus on grain-free, high-protein dog food caused it to lose about $10 million in sales in the second half of 2019 because pet owners stopped buying that type of product after reading reports that the food could cause dilated cardiomyopathy, a potentially fatal heart disease in dogs, according to the declaration filing by Stephen Coulombe, co-chief restructuring officer of the company. The filing said the U.S. Food and Drug Administration hasn’t established a causal relationship between grain-free diets and the disease.

Bed Bath & Beyond Inc. said Friday it was closing an additional 87 of its flagship stores and its entire Harmon chain of drugstores, as the retailer struggles to find financial support to keep its operations funded, WSJ Pro Bankruptcy reported. The latest closings are in addition to a plan announced in August to shut 150 lower-performing Bed Bath & Beyond locations, a spokeswoman said. The company said Friday it is also closing five of its Buybuy Baby stores. The company had about 50 Harmon stores as of February 2022. The company, which is expected to file for bankruptcy soon, faces limited options to reorganize as a going concern. Its lenders have cut off credit, it hasn’t secured a buyer to acquire its business, it is struggling to raise financing to survive chapter 11 even in shrunken form and many vendors have stopped shipping goods to the retailer. Discussions are continuing and a financing deal could still materialize. On Thursday, Bed Bath & Beyond said it received a default notice from JPMorgan Chase & Co., after it overdrew on its credit lines. If it doesn’t gain access to financing, the retailer might need to close all or most of its stores. Read more.

In related news, Bed Bath & Beyond Inc.’s slide toward a potential bankruptcy filing threatens to flood the retail real-estate market with hundreds of vacant stores after the company said last week it would close about 90 additional locations, the Wall Street Journal reported. But landlords who own big-box space occupied by the troubled home-goods retailer are more confident about finding new tenants than they would have been in years past, according to property owners and retail analysts. One of the bigger Bed Bath & Beyond landlords has received commitments from tenants to fill all 12 locations if and when they close, according to a person familiar with the matter, including Sephora, Trader Joe’s, Dick’s Sporting Goods Inc., T.J. Maxx, Ross Stores Inc. and HomeGoods. After years of shrinking their real-estate footprints, big-box retailers such as bookseller Barnes & Noble and discount-clothing store Burlington have shown signs of expanding again. Demand for larger retail spaces is particularly strong in the Sunbelt region, where the population has grown significantly over the last decade but very little new retail has been built since the 2008 financial crisis, said Chuck McShane, director of market analytics for the Carolinas at CoStar Group Inc. Read more. (Subscription required.) 

Under pressure to address the nation’s soaring housing costs, the Biden administration yesterday announced significant new actions to protect tenants and make renting more affordable, the Washington Post reported. The announcement involves multiple federal agencies that will gather information on unfair housing practices. It also includes a “Blueprint for a Renters Bill of Rights” that, while not binding, sets clear guidelines to help renters stay in affordable housing. The White House is also launching a call to action, dubbed the “Resident-Centered Housing Challenge,” that aims to get housing providers as well as state and local governments to strengthen policies in their own markets. After months of deliberation, the moves come as the housing market continues to pose a serious problem for people who don’t own their homes — and for the economy overall. While inflation has fallen for the past six months, average rental prices have continued to increase rapidly, disproportionately hurting vulnerable households that spend the bulk of their budgets on rent. Meanwhile, the country is stuck in a massive housing shortfall, complicating efforts to lower costs or simply find enough places for the 44 million American renter households to go.

The federal government allocated funds for distressed homeowners as part of its expansive efforts to help Americans cope with the pandemic’s financial strains. Unlike some other stimulus programs, such as checks mailed to individuals, this money moved slowly. The nearly $10 billion Homeowner Assistance Fund was administered through the U.S. Treasury Department, but relied heavily on individual states to set up programs to distribute aid, the Wall Street Journal reported. Some were slow to get up and running. Others struggled with a backlog of applications. For homeowners, getting money before the foreclosure went through could be a race against time. The fund doled out about $2 billion to more than 150,000 households through the end of September, according to the National Council of State Housing Agencies, a trade group. The money serves a narrow slice of the population: There were some 324,000 foreclosure filings last year, below prepandemic norms but more than double 2021, according to real-estate data firm Attom. The funds were made available to homeowners who experienced pandemic-related hardships and whose household incomes were below a certain threshold. Most states gave the money as grants. About 200 homeowners have complained about the program through the Consumer Financial Protection Bureau’s complaint portal, including a handful about foreclosures moving forward while they were waiting on assistance. CFPB warned in March that foreclosing on a borrower who has a pending assistance application “will merit increased scrutiny.” Government officials, as well as representatives of mortgage companies and states, said the assistance program has picked up speed, particularly in recent months, and everyone is working together. Servicers benefit more from taking the money than taking the home in a foreclosure, they said.