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More than 300 malls in the U.S. are categorized as "Class B" malls, according to real estate research firm Green Street Advisors. With their middle-of-the-road sales productivity, mix of national and regional tenants and one or more anchor vacancies, Class Bs are right in that gray area: Some will weather the current storm, but many will not, Bloomberg News reported. Rent and occupancy at B malls were already falling before the pandemic, but they were less likely to have several anchor vacancies or poor sales like the worst-performing malls in the U.S., those Cs or Ds. About 11 percent of B and B+ malls now have two anchor vacancies, while nearly a third of B- malls have two empty anchors or more. When malls have one anchor vacancy and other anchors start to follow, “that’s when things start to accelerate to the downside,” said Zachary Klein, a real estate and leisure analyst at Fitch Ratings. Since many leases include so-called co-tenancy clauses that let other retailers break leases or pay less if key tenants leave, an anchor vacancy can spell more bad news ahead for middle-tier malls. Although many bankrupt retailers continue operating while restructuring under chapter 11, they’re planning to shut down droves of lower-performing stores. All in all, as many as 25,000 stores could close in the U.S. this year, mostly in malls, according to Coresight. That would demolish the previous record of about 9,800 closures, set in 2019.

When Brooks Brothers filed for bankruptcy last month, court filings showed it owed as much as $1 billion to thousands of creditors, including $10 million to one of its biggest landlords: Simon Property Group. Now the nation’s premier mall operator is also its owner, the Washington Post reported. In recent weeks, Indiana-based Simon snapped up bankrupt retailers Brooks Brothers and Lucky Brand, and bid on another, J.C. Penney. It also is reportedly in talks with Amazon to turn space once filled by Sears and other department stores into e-commerce warehouses. Analysts say the succession of deals gives Simon a roster of iconic brands for rock-bottom prices and steady rent. Others see an act of desperation that will only delay the inevitable demise of dozens of flailing malls across the country. The company’s foray from landlord to owner shows just how deeply the coronavirus crisis has reshaped the retail industry. Like many of its peers, Simon temporarily shut all 175 of its U.S. malls and outlets in March, and was reported to have furloughed about 30 percent of its workforce. It delayed more than $1 billion in redevelopments. Major tenants like the Gap stopped paying rent, while others began pulling out of leases. Apparel chain Abercrombie & Fitch, meanwhile, is suing Simon, alleging that it “wrongfully extracted rent payments” during the pandemic. In all, Simon collected about 51 percent of retailers’ rent payments in April and May, and about 70 percent in June and July, executives said on an earnings call this month. Now the company is investing millions to prop up some failing retailers, in hopes of keeping occupancy rates up and rent payments coming in.

An upscale Miami-area shopping mall is moving to evict Saks Fifth Avenue, saying the retailer hasn’t paid rent since March 16 and owes about $1.9 million, Bloomberg News reported. Saks told its landlord, Bal Harbour Shops LLC, this month that it couldn’t make lease payments on its three-level retail store due to the effects of the Covid-19 pandemic, according to a lawsuit filed in state court. But the mall owner said that Saks is currently open and was still generating revenue even when non-essential businesses were closed to in-store customers. Bal Harbour said that the store generated more revenue in June 2020 than it did in the same month the previous year. Saks Fifth Avenue, owned by Canadian parent Hudson’s Bay Co., is among a broad group of businesses that have been hurt by economic lockdowns and a rapid change of consumer tendencies amid the global pandemic. In a statement, Saks Fifth Avenue said that the owners of Bal Harbour “have not acted in good faith,” unlike “the majority of our landlord partners.” 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.

J.Crew Group Inc. said yesterday that it expects to emerge from chapter 11 in early September, after a bankruptcy court accepted its restructuring plan, Reuters reported. The plan, approved by a Virginia federal court, will equitize over $1.6 billion of secured debt, and provide for $400 million in asset-based loan as well as $400 million of fresh financial aid. The company was pressured by the virus outbreak to temporarily close its nearly 500 J. Crew, J. Crew Factory and Madewell stores, and also shelve its plans for an initial public offering of its Madewell business. In 2011, J. Crew was taken private by TPG and Leonard Green & Partners in a roughly $3 billion leveraged buyout. Years later in 2017, the retailer avoided bankruptcy in a deal with creditors that reduced total debt and pushed due dates on obligations.

Nordstrom Inc. reported a bigger-than-expected loss yesterday, as the COVID-19 pandemic shut its stores for about half of the reported quarter and consumers stayed home with little need for designer clothes, Reuters reported. Like many of its peers, Nordstrom suffered from a pandemic-induced months-long closure of its stores across the United States, bringing foot traffic to a standstill. Shoppers staying home to curb the spread of the virus, didn’t find themselves purchasing as much upscale apparel and formal work attire. “We’re confident that we can improve sales trends in the second half of the year and beyond,” said Pete Nordstrom, president and chief brand officer of Nordstrom. “Our inventories are current and in-line, and we’re focused on amplifying relevant categories, brands and trends to meet customers’ changing preferences.” Seattle-based Nordstrom reported a net loss of $255 million, or $1.62 per share, compared with a profit of $141 million, or 90 cents per share, a year earlier.

Bed Bath & Beyond said yesterday that it’s cutting 2,800 jobs at its corporate headquarters and stores — about 5 percent of its overall workforce — as the troubled home goods retailer looks to pivot more of its business online, the Associated Press reported. The company said that the job cuts will save it about $150 million a year, before taxes. The figure represents a portion of the anticipated savings from a corporate restructuring plan announced earlier this year. The Union, N.J.-based company said the action is designed to reduce layers at the corporate level, reposition field operations to better serve customers who are shopping more online, as well as realign technology, its supply network and merchandising teams. The moves build on Bed Bath & Beyond’s recent introduction of services like allowing online shoppers to pickup items in the store or at curbside.

This summer’s markets rally hasn’t helped banks and investors who lent about $2.7 billion to build the country’s second-largest mall, near the Meadowlands Sports Complex in New Jersey, the Wall Street Journal reported. The American Dream Mall has been shut since March, and mutual funds that bought municipal bonds backing its construction have since taken hundreds of millions of dollars in paper losses. The troubles highlight the growing disconnect between ailing segments of the U.S. economy and the surge on Wall Street. Even with schools in New Jersey preparing to reopen, American Dream remains closed because of a state order aimed at reducing the spread of the new coronavirus. The longer the hybrid mall and amusement park goes without paying customers, the harder it will be for its owner, Triple Five Group, to repay the money it borrowed from banks and mutual funds in 2017. The price of some of American Dream’s roughly $1 billion of municipal bonds fell to about 87 cents on the dollar in July after Triple Five disclosed that the mall was losing tenants. The bonds had traded around 120 cents before the coronavirus struck the U.S., according to data from Electronic Municipal Market Access. Municipal-bond mutual funds operated by Nuveen, which owned about $600 million face value of American Dream debt this spring, took paper losses of about $196 million on the investment from March through June, according to a Wall Street Journal analysis of fund reports published by Nuveen. Interest payments over the period reduced the net paper loss to $183 million, according to a Nuveen spokeswoman.

Retail landlords are including pandemic language in new leases, a previously rare feature as tenants seek protection after the first government-mandated coronavirus shutdowns in March complicated their negotiations for rent relief, the Wall Street Journal reported. Because many insurance policies didn’t cover pandemic-related losses, landlords have offered various concessions to attract and retain tenants, including allowing them to defer part of their rent if another shutdown is ordered. Both sides get breathing room: Tenants are able to lower expenses while landlords are still able to collect some money for overhead and their mortgage. “You have to provide the tenant an easy decision. If you make it complicated, you’re not going to get this done,” said Philippe Lanier, principal at EastBanc, a property developer, owner and manager of 25 open-air retail properties in Washington, D.C.’s Georgetown neighborhood. Lanier has offered to cut the minimum base rent to 50 percent if the District of Columbia prohibits tenants from operating their business again because of the coronavirus, and for the tenant to repay the difference in six equal monthly installments on the first day after reopening. He also is open to leases structured on a percentage of the retailer’s sales—“percentage rents”—which would limit tenants’ expenses if their sales decline. He said he had signed amended leases with around 30 retail tenants, with an additional 15 still in the works. Real-estate brokers said that landlords have to contend with a glut of stores and social-distancing measures that have forced many retailers to shrink the number of stores. The trend puts more bargaining power in the hands of tenants such as restaurants, apparel retailers, grocery stores and discount stores that are still expanding. “We have begun to clarify and strengthen some of our force majeure language to more clearly define governmental shutdown, et cetera, which could happen for a multitude of reasons,” said Josh Goldstein, director of real estate and store development at Pet Supplies Plus, referring to “act of God” clauses that allow tenants to terminate leases or reduce rents in extraordinary circumstances. Questions remain about how long Covid-19 will persist, and some businesses are wary about the recent resurgence in infections in California, Texas and Florida. Landlords have extended more relief to tenants such as small local and regional apparel retailers, salons and restaurants that have felt the most pain. They also said they anticipate more tenant bankruptcies.

The parent of Kings Food Markets and Balducci’s has filed for bankruptcy, as a sales boost amid the Covid-19 pandemic wasn’t enough to overcome years of pressure from big national chains, online retailers and meal-kit companies, WSJ Pro Bankruptcy reported. KB US Holdings Inc. sought chapter 11 protection on Sunday in U.S. Bankruptcy Court in White Plains, N.Y., with a $75 million buyout offer from New York investment firm TLI Bedrock LLC. The grocer, which purchased Balducci’s in 2009, operates 35 supermarkets—25 Kings and 10 Balducci’s—in New York, New Jersey, Connecticut, Virginia and Maryland, and employs more than 2,100 people. Sales at big supermarkets have surged during the coronavirus pandemic, with shoppers stocking up on everything from bread to toilet paper. But for Kings and Balducci’s, the boost was too little, too late. “While the increase in sales during the Covid-19 pandemic has provided KB with a brief respite from its liquidity challenges, the debtors recognize that the pandemic will not persist indefinitely and has created uncertain and unprecedented circumstances,” said restructuring specialist M. Benjamin Jones in a declaration filed with the court. Before the pandemic, KB experienced “historically low” earnings, which the company blamed in court papers on competitive pressures and labor costs—a portion of the chain’s workforce is unionized—and pension obligations. Those pressures have significantly pinched the chain’s liquidity and cash flow, Jones said, causing it to default on $114 million in senior debt and to put off investments in store renovations.

A bankruptcy judge in Texas raised the question of whether the findings of an investigation into Marble Ridge founder Dan Kamensky should be referred to federal prosecutors to determine whether the investment manager committed a crime, Bloomberg Law reported. At the end of a court hearing on Friday, U.S. Bankruptcy Judge David R. Jones asked lawyers for the Office of the U.S. Trustee, an arm of the Department of Justice that deals with bankruptcy matters, whether they had given the results of their probe into Kamensky to federal prosecutors. The Trustee’s office said on Wednesday that the hedge fund manager had improperly tried to stop another bidder from buying some of Neiman Marcus Group Inc.’s best assets in the department store’s bankruptcy case. When told by a lawyer for the Office of the U.S. Trustee that it wasn’t clear whether prosecutors are involved, Judge Jones said that he will set a further court hearing on the matter. Kamensky declined to comment.

In related news, Marble Ridge Capital LP, a hedge-fund firm known for investing in distressed companies, is shutting down after a government inquiry found that founder Dan Kamensky tried to suppress bidding for a piece of bankrupt retailer Neiman Marcus Group Ltd, WSJ Pro Bankruptcy reported. A spokesman for Marble Ridge said on Friday that it is “winding down.” The decision marks a stunning fall for Kamensky, who built a reputation sifting through the subprime mortgage meltdown, founded Marble Ridge in 2015 and grew it to a firm with roughly $1 billion in assets under management. Since 2018, Kamensky has waged a legal campaign against Neiman’s private-equity backers, helping snare a big settlement that became his undoing. On Wednesday, watchdogs from the Justice Department concluded that Kamensky had secretly coerced a major investment bank not to bid for shares in Neiman’s e-commerce business, MyTheresa, that are part of that deal. Read more.