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Wednesday, 10 January 2018

2017 Was Huge for Retailer Bankruptcies; CMBS Dodged a Bullet

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Commercial Real Estate Direct Staff Report

Last year, more than 30 U.S. retailers filed for bankruptcy protection.

While not necessarily indicating that the retail sector is weakening, the filings have had a substantial impact, not only on properties, but also CMBS, as more than $35 billion of securitized loans are exposed to at least one retailer on that list. The main culprit for what many call the brick-and-mortar "retail apocalypse" is the surging growth of e-commerce and transformed consumer trends.

Online shopping giant Amazon.com and other retailers with comparable digital platforms have proven that e-commerce can compete in virtually every corner of the retail industry. Consumers are turning online to buy apparel, home goods, shoes, electronics, sporting goods and even groceries. E-commerce demand began to skyrocket in early 2015, and has continued growing relentlessly as more and more retailers implement faster last-mile delivery services.

While Sears, Macy's and JCPenney weren't among the retailers that filed last year, the three department-store chains shuttered more than 500 stores. The popularity of traditional department stores is plunging, in step with the rise of e-commerce, and hundreds of malls nationwide report declining foot traffic. Consequently, retail CMBS loans secured by regional malls and shopping centers are those most vulnerable to the recent rounds of retail bankruptcies and store closings.

Part of the issue is that the country simply has too much retail space, including in malls. Between 1970 and 2015, the number of malls constructed outpaced growth in the general population. What's more, mall visits dropped by 50 percent between 2010 and 2013, according to Cushman & Wakefield.

Meanwhile, retail sales increased by 2.6 percent in 2016, and 5.6 percent during the first half of last year. The retailers that had filed for bankruptcy or were planning to shutter stores generally have failed to adapt to market trends.

Industry experts observe that many of the companies that declared bankruptcy are concentrated in a few highly competitive areas.

Leslie Hand, vice president of advisory IDC Retail Insights, observes, "the majority of weakness that we have seen is in apparel, footwear and related segments, consistent with our expectation that these segments are over-stored, overstocked and simply out of alignment with consumer share of wallet/spend."

Indeed, according to the U.S. Census Bureau, sales at clothing stores through last October were up only 0.6 percent from the same period a year earlier. At sporting goods, hobby and music stores, they were 4.5 percent below the year before, and at department stores, they were 2.8 percent lower.

Retailers specializing in those sectors form the backbone of malls. So many owners are increasingly focused on revamping their properties, particularly their better-performing malls and shedding weaker properties. They're also luring more food, entertainment, fitness and other specialty retailers that can adapt and incorporate experiential technology into their offerings.

Following is a list of some of the major retailers that filed for bankruptcy last year. It would be led by Toys "R" Us, but the company's filing was driven not so much by weak sales as it was a defensive maneuver to buy time to restructure its massive debt load. The retailer said the filing wouldn't affect operations in the United States, where it operates 885 stores, including its Babies "R" Us franchise.

The Limited

Once a popular working woman's clothing chain, The Limited declared bankruptcy in mid-January and was subsequently purchased by private-equity firm Sycamore Partners. The Ohio apparel company closed all 250 of its U.S. stores and sold off its e-commerce domain and brand name. The retailer later moved its entire inventory online, and relaunched its e-commerce site in late October. A total of $14.7 billion of CMBS loans have some exposure to the retailer, but the 127 loans typically are backed by large regional malls, where The Limited is a relatively small tenant.


Children's clothing company Gymboree filed for bankruptcy in mid-June, reporting about $1.4 billion in debt. Its aim is to close up to 450 of its 1,281 stores. The company buckled due to weakened sales, driven by competition from more-established retailers such as Children's Place and GapKids, as well as online retailers. E-commerce sales comprise 21 percent of Gymboree's revenue. The retailer occupies stores in properties that back 75 CMBS loans with a balance of $5.4 billion, but it's typically not a top tenant.

Payless ShoeSource

Discount footwear retailer Payless ShoeSource filed for bankruptcy last April and immediately shuttered 378 U.S. stores, which later increased to 700 stores. The company emerged from bankruptcy in August, with plans to expand its e-commerce platform. A total of 86 CMBS loans totaling $3.9 billion include Payless as a top-five tenant. But only 31 loans totaling $935.3 million have an exposure to stores that Payless is closing.


Longstanding electronics retailer RadioShack filed for bankruptcy in March, its second filing since February 2015. The retailer closed 1,000 stores by last summer, leaving only 70 stores open. Another 500 stores are owned by independent franchisees.


Appliance and electronics retailer hhgregg and its Gregg Appliances unit filed for bankruptcy protection in March, after struggling with declining sales for four years. The company was listed as a top tenant at properties backing 42 CMBS loans totaling $1.8 billion. A month after filing, the company said it would liquidate all 220 of its stores after having failed to find a buyer.


Teen clothing store Rue21 announced in April that 400 of its 1,218 U.S. locations would close. Soon after, it filed for bankruptcy, citing "decreased sales and increased operating costs, the shift away from brick-and-mortar retail sales to online channels and the tightening of trade credit." The company emerged from bankruptcy in September with 758 stores and a de-leveraged balance sheet. CMBS exposure totals 66 loans with a balance of $1.7 billion. But the retailer typically occupied relatively small locations at sizable properties that serve as collateral.


Gordmans Stores Inc., an Omaha, Neb., department store company, filed for bankruptcy in March. The following month, it identified 48 of its 105 stores that would close and 57 that would continue operating as discount stores under the new ownership of Stage Stores, which paid $40 million for the stores, as well as an Omaha distribution facility. CMBS has an exposure to 28 properties totaling $944.3 million where Gordmans is a tenant. But only eight loans totaling $312.8 million are tied to stores earmarked for closure.

Gander Mountain

Outdoor goods retailer Gander Mountain Co. filed for bankruptcy in March and two months later was bought by Camping World Holdings Inc., which said it would re-brand most of Gander Mountain's stores as Gander Outdoors or Overton's stores. Some stores will shutter permanently. While a total of $432.6 million of CMBS loans have an exposure to the retailer, only five loans totaling $65.7 million will be impacted by the closures.

MC Sports

Grand Rapids, Mich., sporting goods chain MC Sports filed for bankruptcy in February, citing weak sales and increased competition. Ten CMBS loans totaling $417.2 million are exposed to the retailer. The company is closing all 68 of its stores.

BCBG Max Azria

Fashion retailer BCBG Max Azria Group also filed for bankruptcy in March. CMBS exposure to the retailer, which had operated 175 stores, was limited, with only $200 million of loans potentially affected. But a $35 million loan was liquidated in June, leaving only a $165 million exposure. Also that month, the bankruptcy court approved a sale of the company's intellectual property to Marquee Brands and inventory to Global Brands Group Holding, which will keep operating 22 stores.

Other retailers, including Styles for Less, Aerosoles, Perfumania, True Religion, Wet Seal and Alfred Angelo Bridal, also filed for bankruptcy. But they had no impact on CMBS. So while the retail sector was hit hard by bankruptcies in 2017, CMBS was well insulated.

That's not to say that mall-backed CMBS loans are out of the woods. While class-A malls continue to record improving sales figures, class-B and lesser malls remain challenged.

Owners of class-A malls have the luxury of being able to use cash flow their properties generate to improve them by adding dining and entertainment options and otherwise diversifying their tenant mixes.

Meanwhile, lesser malls, which often are anchored by middle-market department stores that also are struggling, will find it difficult to get redeveloped or improved. Many will likely follow the lead of other class-B malls that were lost to foreclosure and sold to opportunistic developers and entrepreneurial operators.

Comments? E-mail Karina Estrella or call her at (212) 754-1010.


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“The Weekly” is Commercial Real Estate Direct’s PDF newsletter, sent to subscribers every Friday morning. With over 100 news stories published on Commercial Real Estate Direct each week, “The Weekly” features the top stories in commercial real estate that industry participants need to know first. “The Weekly” also contains:

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Additional Info

  • Syndicate to Realpoint: No
  • Sector: Retail
  • Subject: Bankruptcy/Foreclosure (BKRPT), Research (RES)
  • Private: No
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Data Digest







Top Bookrunners Domestic, Private-Label CMBS - 2017
Investment Bank #Deals Vol$mln MktShr%
Goldman Sachs 17.59 11,819.34 13.68
JPMorgan Securities 14.52 10,968.11 12.70
Citigroup 12.04 10,012.71 11.59
Wells Fargo Securities 14.02 9,936.06 11.50
Deutsche Bank 12.55 9,879.74 11.44




cppichart FP



CMBS 2.0 Spreads


Top CMBS Loan Contributors - 2017
Lender #Loans Vol$mln MktShr%
Goldman Sachs 146.89 11,719.34 13.63
JPMorgan Chase Bank 117.68 10,114.14 11.76
Deutsche Bank 198.48 9,689.97 11.27
Morgan Stanley 166.18 8,539.78 9.93
Citigroup 199.05 8,088.24 9.41





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