Shopping Center Business

JUN 2018

Shopping Center Business is the leading monthly business magazine for the retail real estate industry.

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LEGAL ISSUES June 2018 • SHOPPING CENTER BUSINESS • 55 H ere is a startling fact in the mid- dle of a booming American economy: The number of U.S. retailers at risk of going bankrupt is higher than it was during the Great Recession. Moody's Investors Service gave 22 re- tail and apparel issuers ratings of Caa or lower — "subject to very high credit risk" — in a recent report. That is a full three retailers above the peak Moody's record- ed during the financial crisis. Today, the "ranks of distressed retailers is set to keep growing," the report said. Readers of Shopping Center Business are likely all too familiar with prophesies of the "retail apocalypse." It is certainly a challenging time in the industry, as evi- denced by a variety of stores with house- hold names declaring bankruptcy in the last year, with persistent indications of more to come in 2018. But the changing trends in where and how we, as consum- ers, buy our stuff are also creating op- portunities. Shopping center owners and commercial lenders in the retail space can take advantage by adapting to the trends and taking key steps to mitigate risks. TRENDS LEADING TO DISTRESSED RETAIL The increased distress of the retail industry can mostly be boiled down to one equation: online shopping plus too much space. The internet has revolu- tionized how Americans shop, but most retailers have been slow to adapt. The result is a fundamental mismatch between how much brick-and-mor- tar space we have and how much we need. No matter where you are in the country — in a big city or a small town — you don't have to drive far to find evidence of this reality: a worn- out looking shopping center with a mostly empty parking lot. Overleveraged balance sheets are an- other pervasive problem. It doesn't take much of a drop in sales revenue to sink a retailer struggling to generate enough cash to make monthly debt service pay- ments and cover basic operational ex- penses. And with the Federal Reserve poised for more interest rate bumps in the coming months, even more retailers are likely to feel this squeeze. Changes by Congress have also height- ened the challenges by making it more difficult for brick-and-mortar retailers to reorganize in a Chapter 11 bankruptcy case. The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 altered the U.S. Bankruptcy Code in sig- nificant ways for retailers. It limited the amount of time a commercial tenant has to decide whether to assume or reject a lease to 210 days from the bankruptcy filing date. This may have seemed like a reasonable amount of time to a heavily lobbied Con- gress in 2005. In real life, however, it puts a significant and often fatal time constraint Legal Issues In A Changing Retail Environment How to get creative, mitigate risks and limit losses in an evolving retail environment. Chip Ford and Jamie Schwedler CLASSIFIED MALL COMPACTORS NO COST TO MALL DEVELOPERS FAIR SHARE DIRECT TENANT BILLING For Rubbish Removal A 20 year history of serving • • • • • • • • MALLS• • • • • • • • OLYMPIC MALL SERVICES A division of Olympic Compactor Rentals, Inc. Chip Panciocco 1-800-722-5371 PROFESSIONAL SERVICES ACCOUNTING, AUDITS Retail Tenant Sales • Compliance • Restaurant • Specialty Examinations United States • Canada • Caribbean Phone 985.626.9979 • 800.999.LAMY • Fax 985.626.9943 E-mail: ARCHITECTURE/DESIGN For classified advertising information, please contact Barbara Sherer (404) 832-8262

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