The pandemic has pounded traditional retailers. Landlords and lenders involved with properties ranging from large malls to urban shopping areas are sizing up their options — and some are playing tough.
Lenders to the Saks Fifth Avenue store at Miami’s Dadeland Mall are foreclosing on its owner, The Wall Street Journal reported. The owner defaulted in April, and hasn’t paid up since then.
The lenders have something to lean on: The $846 million mortgage is backed by collateral from 10 Saks stores and 24 Lord & Taylor stores around the country. Therefore, the lender could potentially grab the other properties through the foreclosure process.
For its part, Lord & Taylor filed for bankruptcy in August and plans to close all 38 of its stores. Hudson’s Bay Co. owns Saks Fifth Avenue and used to own Lord & Taylor.
Hudson’s Bay told the Journal that the owner “is disappointed that in the context of a global health crisis the lenders would choose litigation over cooperation but understand the background and continue to diligently pursue an amicable solution.”
A lawyer for the lender did not respond to requests for comment from the news outlet. The lawyer represents the various bondholders — which now own the commercial mortgage-backed securities.
Concerns are rising that falling commercial real estate prices could cause steep bank losses. That’s an outgrowth of the pandemic, which has many people working from home and shopping online.
Bank losses figured big in the Great Recession.
“Large (commercial real estate) price declines generally translate into big losses for banks. Write-offs of (commercial real estate) loans made a big contribution to overall bank losses in the last two major downturns,” said Adam Slater, economist at Oxford Economics, in a new report.
Some in the real estate industry are eyeing what comes next if stores and even malls close down.
Jeff Blau, CEO of New York-based real estate firm Related Companies, said the hundreds of thousands of square feet of vacant space left behind at shuttered shopping centers can be transformed into apartments or offices.
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