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August 2019 CRE Research Retailers at Risk: How Long Will the Retailpocalypse Continue? The so-called “retail apocalypse” showed no signs of wind- Shoesource – which was once the largest family-owned ing down in 2019, with its momentum fueled by leveraged US retail business – came to the decision to liquidate all stress from private equity ownership, dwindling sales from of its 2,700 locations by this June. Payless accounted for ecommerce’s growing influence, shifts in consumer tastes the overwhelming majority of scheduled store closures in and purchasing behavior, unfavorable leasing arrange- 2019, and its recent downfall puts it in the history books for ments, and continued efforts by brands to boost profitabil- the largest retail liquidation of all time by count. ity by rightsizing their physical portfolios. In terms of overall square footage, however, Coresight Re- Coresight Research estimates that approximately 7,500 US search notes that 2018 still marked a peak for new retail store closings have already been announced through July of vacancies since the past year saw the most significant big- 2019; a figure that already eclipses the total closure count box cutbacks from the likes of Sears, Kmart, Bon-Ton, and of 5,864 for full year 2018 by roughly 20%. The firm details Toys “R” Us. Costar projects that this resulted in 155 mil- that announced store closures could rise to 12,000 by the lion square feet of physical space that needed to be refilled. end of this year which would completely shatter 2017’s re- cord-breaking count of 8,139 liquidated storefronts. By comparison, the list of 2019’s year-to-date retail casual- ties primarily consists of specialty and niche players, mom Among the retailers with the largest brick-and-mortar foot- and pop shops, and regional chains with smaller parcels that prints being shuttered in the coming months include recent- have struggled to compete against the brand loyalty and dis- ly bankrupt or defunct chains such as Payless ShoeSource, count pricing advantages of Target and Walmart, as well as Charlotte Russe, Gymboree, and Dressbarn. Payless the convenience and accessibility of online shopping. RETAILERS WITH LARGEST CMBS EXPOSURES TOTAL LOAN TOTAL EXPOSURE CMBS DEAL WITH TENANT/ANCHOR # OF DEALS # OF LOANS BALANCE BALANCE HIGHEST Forever 21 $19,527,174,481 $991,503,717 $146 $187 BMARK 2019-B12 Macys $18,471,450,918 $4,183,109,697 $133 $161 BMARK 2019-B12 JCPenney $17,523,519,561 $3,446,285,091 $199 $270 BMARK 2019-B12 H&M $12,103,218,077 $663,317,336 $111 $133 BANK 2018-BN14 Dick's Sporting Goods $11,823,003,274 $1,404,944,543 $173 $227 BMARK 2019-B12 Nordstrom $11,270,712,354 $1,693,067,009 $101 $111 BMARK 2018-B2 Ross Dress for Less $9,595,217,075 $1,131,982,269 $247 $361 COMM 2015-CR23 Old Navy $9,046,215,453 $712,658,920 $156 $182 GSMS 2012-ALOH Barnes and Noble $8,338,137,417 $560,476,932 $126 $146 BMARK 2018-B2 Burlington Coat Factory $7,479,515,161 $1,011,772,015 $143 $178 COMM 2015-CR23 Source: Trepp *Total Loan Balance = Total loan balance backed by retailer *Exposure Balance = (current loan balance)*(percent occupied by retailer)*(allocated percentage of the loan backed by the property) www.trepp.com 1 CRE Research August 2019 Major Retailer Headlines in 2019 Year-to-Date: remain in business. The big loan to footnote for CMBS investors is the $70.8 million loan (5.73% of DBUBS 2011- Barnes & Noble: In June 2019, private equity firm Elliot LC2A) secured by a 94,700 square-foot retail property Management won the bid to purchase Barnes & Noble built specifically to house its Chicago flagship. The Bar- and to assume the retailer’s underlying debt in a deal neys Chicago flagship is slated to close though its current worth $638 million via a $6.50 per share all-cash transac- lease ends in 2024. tion. (Book distributor ReaderLink had submitted an offer with a higher share price that was ultimately declined.) On a positive note, the Barney’s Madison Ave flagship – While investors can expect the continued business of which is the sole tenant at the 276,000 square-foot retail Barnes & Nobles in CMBS properties, there is a possi- property behind a $79.6 million CMBS loan – will remain bility that Elliot may move more aggressively to shutter open. The loan comprises 14.11% of GSMS 2010-C1 and stores or to modify the retailer’s current brand approach. matures in July 2020. The retailer also has non-top five An article from Quartz noted that newly appointed CEO tenant footprints at the Santa Monica Place retail center James Daunt hopes to execute a turnaround strategy in California, which comprises a $300 million single-asset centered on drawing consumers into physical stores by deal, and the Grand Canal Shoppes in Las Vegas, which operating them more like independents. CMBS exposure supports a $170 million loan split between two 2019 for the bookseller amounts to $11 billion across 123 deals deals. Both locations will be shuttered. and 102 properties. Some of the largest loans featuring Charming Charlie: Charming Charlie announced it will be Barnes & Noble as a major tenant include the $194.3 mil- going out of business in July 2017 shortly after its second lion mortgage behind the Lehigh Valley Mall in Whitehall, bankruptcy filing in less than two years. The firm will liq- Pennsylvania (5.5% of collateral’s space) and the $133.3 uidate its entire 261 store footprint across 38 states by million loan secured by the Deerbrook Mall in Humble, the end of August, noting that it could not come up with Texas (4.5%). a plan to “ensure long-term profitability.” The retailer has Barney’s: A New York Times article released in July first a top five tenant lease at eight properties behind $1.26 shed light that luxury retailer Barneys was contemplat- billion in CMBS split across 11 deals (this total excludes ing a bankruptcy filing after the rent at its New York flag- Charming Charlie’s previously closed stores at the Wolf- ship was nearly doubled. The firm’s rent at its 660 Madi- chase Galleria in Tennessee and the Houma Crossing in son Avenue store was reset to a market level of $30 Louisiana.) When you drill down to the allocated balance million in January from a previous rate of $16 million, of the properties leased to Charming Charlie for large which could make it more difficult for the retailer to sus- portfolio loan exposures, the overall intersection amounts tain its lease. At the time, the NYT piece reported that to about $256.7 million. The largest loans affected include “[t]he possibilities for Barneys include filing for Chapter the $50.8 million backed by the Shops at Norterra in Phoe- 11 bankruptcy protection, renegotiating leases -- not just nix, Arizona and the $24 million loan behind the Heritage of its Madison Avenue flagship, but potentially of other Square in Granger, Indiana, where the retailer currently branches in its 22-store network.” Barneys officially filed occupies about 12,000 square feet. for bankruptcy on August 6th and revealed it will be clos- Charlotte Russe: Charlotte Russe declared bankruptcy ing 15 of its 22 stores. in February 2019 and released an initial closure list af- Per court filings, the closure list consists of Barneys New fecting 94 locations. The young women’s apparel chain York locations in Chicago, Las Vegas, and Seattle while ramped up its downsizing plans one month later with the flagships in Manhattan, California, and Boston will a statement expressing that it was preparing to com- www.trepp.com 2 CRE Research August 2019 mence going out of business sales at all 500 brick-and- the fourth or fifth-largest tenant with parcels averaging mortar stores if no buyer is found. The firm closed a about 8,000 square feet under leases expiring from 2019 quick turnaround deal in late March, announcing that it through 2027. About $1.07 billion in CMBS loans across had sold its intellectual property rights to Toronto-based 42 deals and 38 properties feature Dressbarn as top five YM Inc. In April, its new parent company announced tenant for a combined allocated balance of $742.3 mil- that the Charlotte Russe brand will see a revival with lion. The retailer is the largest tenant at The Shoppes at the re-opening of 100 stores and its online operations. Zion in St. George, Utah, which backs a $22.3 million loan About $137.9 million across six deals and four proper- in WFCM 2016-NXS5 and the third-largest tenant at the ties are currently backed by the retailer. The largest loan Boca Park Marketplace in Las Vegas that secures a $45.1 impacted is the $32.8 million 1900 Bryant Street note million loan in WFCM 2015-SG1. (LSTAR 2017-5), where the retailer’s San Francisco store occupies 35.01% of the collateral’s space. Family Dollar: Dollar Tree – which had acquired its rival Family Dollar for $9.2 billion in 2015 – announced that Chico’s FAS: In January 2019, women’s clothing retailer it will close 390 stores in 2019 and convert another 200 Chico’s FAS announced that the firm was carrying out stores under its namesake banner. The retailer has a a strategic review of its operations to boost profitabil- sizable footprint in CMBS and is listed as a top five ten- ity and expand its online offerings. The firm is shutter- ant at 399 properties backing $3.49 billion split across ing at least 250 stores over the next three years across 166 deals.