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Busted retailers use bankruptcy to break leases by the thousands

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Re: Busted retailers use bankruptcy to break leases by the thousands

#131

Post by pgrote »

mikestew wrote: post #16

Man, with (currently) four comments mentioning that this is "what bankruptcy is for", I think the point of the article might have been missed. This isn't some sneaky "one weird trick", and that's not the reason Bloomberg is reporting on it. In fact, the tone of the article to me is, "yup, companies do it all the time, but..." And the "but" is: But the moves threaten to upend huge swaths of the real estate market and…

>But the moves threaten to upend huge swaths of the real estate market and the half-trillion dollar market for commercial mortgage-backed securities.

And?

Seriously. We either have to choose to be a market that is somewhat free or not. At this point, the government is choosing winners and losers. It is a repeat of 2008. Oh no, it is too big to fail.

Someone will come by with the investment to buy what is left. Perhaps they will run it better. Prepare better.

We're going through this with airlines and cruise companies now fighting for more money and loans from the government. Perhaps Delta grew too large to be what they are now. Maybe there are too many malls in existence. Maybe the method in which we collateralize mortgages doesn't make sense anymore.

Our economy has developed the too big to fail mindset and forgotten, largely, you can lose.

Re: Busted retailers use bankruptcy to break leases by the thousands

#132

Post by munk-a »

marcosdumay wrote: post #92
WanderPanda wrote: post #66

Earlier quoted context omitted.

Germany is proving that you can do that. Businesses are not required to file for bankruptcy anymore (because of covid), they can just pretend everything is fine and their banks do not need do depreciate their debt. Bubble alert is buzzing louder every day. If that exemption law will not be prolonged after end of September interesting things will probably follow

Pausing debt collection on a temporary disruption is a best practice, not some shady number-hiding. If the disruption happens to not be temporary, then it will be a problem (retroactively, so a huge one). But in that case, there are more pressing issues.

A large proportion of those debt collectors are gigantic soulless corporations that nobody would mind watching suffering somewhat - but that's the same as every industry. There are a lot of smaller property owners that are really hurting here and pausing debt collection might free those owners from debts but it won't put food on their table.

This is, unfortunately, a very complicated problem.

Re: Busted retailers use bankruptcy to break leases by the thousands

#133

Post by Nasrudith »

gremlinsinc wrote: post #29
asdfasgasdgasdg wrote: post #4

It's basically the definition of bankruptcy that you need to renege on your obligations to someone. Landlords run that risk. They're hardly the ones losing the most -- think of the poor creditors and shareholders. The landlords are only losing the expense of finding their next tenant, plus any difference in the market rate when the original lease was signed and today.

I think everyone loses regardless, but I don't think we should prop up businesses, capitalism should be a game that you play to win or play to lose. Government needs to stop getting involved period. Help at the bottom - prop up the citizens who the government IS responsible for, let the rest duke it out. Corporations are not citizens. Government has no duty to help corporations. But, yeah everybody will hurt by this,…

You can look at what actually happens in abandoned malls - bored teenagers and college students calling themselves "urban explorers" check them out and engage in some graffiti in a long abandoned site or trysts at most.

Gangs would find them goddamned useless as territory because there is no income stream there. There isn't anyone to make money selling drugs to or johns for clients to pimp out. That is why the damn mall closed in the first place!

The low traffic ironically makes it a poor place to lay low as "I saw some guy enter an hour or so ago" becomes useful instead of vague and useless.

That similar noticability and lack of good pretexts makes it a poor choice for a meth lab compared to a random trailer or basement.

They wind up such an economic wasteland that they aren't even good for criminal purposes which is vaguely impressive. That is essentially the one "upside" of their separation from residences. They aren't like the Opium Den/Crackhouse/Methhouse because they lack the attractiveness to be an attractive nuisance.

Re: Busted retailers use bankruptcy to break leases by the thousands

#134

Post by dternyak »

Buttons840 wrote: post #124
HarryHirsch wrote: post #53

Earlier quoted context omitted.

That's the irresistible force (drop in salaries) meeting the immovable object (bank valuations of real estate). It's impossible to see how this is going to be squared up. On one hand, banks cannot possibly be allowed to re-value what real estate they have on their books, else they'll have to declare bankruptcy, on the other hand, wages have dropped spectacularly, and people need some sort of roof over their heads.

> banks cannot possibly be allowed to re-value what real estate they have on their books Tell me more about this? Why can't banks re-value things that constantly change in value?

The next fragment, "else they'll have to declare bankruptcy", is pretty much the answer. And as we learned in 2008, they're also "too big to fail", so that won't be happening.

Re: Busted retailers use bankruptcy to break leases by the thousands

#135

Post by landryraccoon »

SketchySeaBeast wrote: post #59
landryraccoon wrote: post #41

Earlier quoted context omitted.

I hope it ends up causing residential real estate prices to fall as a consequence. Maybe then millennials will be able to afford homes. I understand some people treat their home as savings but that's bad in every way for society and for the homeowner. I have a home and the only return I expect on it is to be able to continue living there. I'm certainly not going to depend on it for my retirement, as that would be rea…

> I understand some people treat their home as savings but that's bad in every way for society and for the homeowner. I have a home and the only return I expect on it is to be able to continue living there. I'm certainly not going to depend on it for my retirement, as that would be really unwise. How else can we think about an expense of hundreds of thousands of dollars? It's ludicrous to spend that much on something…

> How else can we think about an expense of hundreds of thousands of dollars?

I’m saying buying a home shouldn’t cost that much. See here’s the insidious thing about housing costing so much - when you were younger you surely didn’t want to spend so much on a house. You don’t want your kids to spend so much either. And if you didn’t spend so much you would never have cared so much if it drops in value.

But now that you have spent that much, you want it to cost the same, even though that perpetuates a system that punished you, your kids and your grandkids.

Do you really want to defend this? Does it boil down to yeah it sucks that houses cost so much but now that I have mine I want to slam the door on the younger generation?

Re: Busted retailers use bankruptcy to break leases by the thousands

#136

Post by vkou »

gonehome wrote: post #114
mikestew wrote: post #16

Man, with (currently) four comments mentioning that this is "what bankruptcy is for", I think the point of the article might have been missed. This isn't some sneaky "one weird trick", and that's not the reason Bloomberg is reporting on it. In fact, the tone of the article to me is, "yup, companies do it all the time, but..." And the "but" is: But the moves threaten to upend huge swaths of the real estate market and…

Maybe someone that understands this better than I do can comment, but isn't this something that can lead to CLO collapse and systemic financial system failure (similar to 2008, but maybe not as severe?). Described in this: https://www.theatlantic.com/magazine/archive/2020/07/coronav... The Dodd-Frank act capital requirements seems like they'll protect banks a bit, but to an outside layman like me it does seem like th…

It can lead to something like that, yes.

Like in 2008, the Fed will print as much money as it takes to prevent this kind of systemic collapse.

Re: Busted retailers use bankruptcy to break leases by the thousands

#137

Post by supertrope »

dwighttk wrote: post #56

I wonder how Apple will respond if malls start collapsing. (I’ve heard rumor that) they pay just pennies on the dollar for their store leases because they draw so much foot traffic to the malls. I can’t imagine them keeping stores open in the middle of a nearly empty mall, but I’ve only ever seen pictures of an Apple store that wasn’t in a mall or strip mall.

Some leases are conditioned the presence of an anchor tenant. So a department store failing can trigger these clauses allowing rent reductions or early termination for smaller retailers.

Re: Busted retailers use bankruptcy to break leases by the thousands

#138

Post by dhosek »

joshcain wrote: post #129
dhosek wrote: post #9

I have a heavy exposure in REITs (my only non-index fund investment). I treat these as passive investments so I had to look to see what I was actually invested in. I have no commercial exposure, but even what I have has been hit hard by COVID. AVB (residential), PEAK (life science/medical office/senior housing) and PSA (Public Storage) are all down roughly 25% YTD. I have to imagine that REITS in retail/office space…

PSA being down is interesting. I might have thought there would be greater demand for storage units as people clear stuff out of their houses to make room for home offices/gyms/etc. That said, all the people who've lost jobs or hours are probably not looking to pay $100s/month for an auxiliary junk room.

One thing I've learned is that markets are rarely rational. But, with REITs, the real return comes in the form of dividends more than capital appreciation, so if the price has irrationally declined, my return will be greater (I have all of my REIT investments set up with dividend reinvestment). I'm not expecting to liquidate any of these positions any time soon so I can afford to wait for them to do whatever they'll do.

Re: Busted retailers use bankruptcy to break leases by the thousands

#139

Post by munk-a »

WanderPanda wrote: post #74
derefr wrote: post #57

Earlier quoted context omitted.

The property management company isn't really a company per se; it's more like a conduit for money, an instrument. If that instrument defaults, it's not of so much concern that a property management company will die; but rather, that the companies who were on either side of it, relying on it as a conduit for money to flow through, will end up illiquid, unable to exchange through that instrument. On one side, that's la…

And yet again the cleanest method would be to not bail out the banks and let the assets be actioned to the highest bidder. Everything else is trading off long term efficient ressource allocation in favor of short term stability.

That would cause a massive economic disruption that could potentially lead to actually bad economic effects. Right now things aren't all sunny and happy for everyone but they can get a lot worse if infrastructural components of the economy start getting eroded - either by being chopped up for vulture capitalists or by having their lending chain & backers divided up similarly.

If Fedex & UPS were to be forced to sell off package delivery in NYC to cover losses while USPS continues to be hamstrung by the administration then things will get bad - and there are a lot of other operators that are a lot less visible but just as essential. Let slip retailers and banks are less stable - let slip banks and companies that are operating through the pandemic on shoe-strings and a whole bunch of backed credits lose the ability to keep the lights on.

Re: Busted retailers use bankruptcy to break leases by the thousands

#140

Post by SketchySeaBeast »

ghaff wrote: post #130
SketchySeaBeast wrote: post #64

Earlier quoted context omitted.

It's the jobs. People didn't migrate from rural to urban in the last several hundred years because they wanted the shops, they went where the highest concentration of jobs were. Moving to a rural area won't help people find jobs.

You mean the jobs that are likely to be at least somewhat less location-dependent coming out of this? (Not arguing for 100% remote or anything like this but still a fairly major shift. I certainly know plenty of people who have already moved out of cities to quite rural locations.)

I think this is another case of knowledge worker myopia. With the exception of Amazon, you can't really work retail remote. Those workers who can work remotely now can leave at any time, that's right, and there has been a bigger shift for them, but we can't pretend that the majority of workers are remote workers. The people who had to come to the city for work, people who worked in retail or in industry, those types jobs aren't moving back rural. You can't work a factory where one isn't and you can't open up retail locations in the middle of nowhere.
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