RETAIL A risky bet by America’s mall owners: Plucking retailers out of bankruptcy to salvage a pandemic-hit industry

KEY POINTS
  • Dozens of retailers, some of them the lifeblood of America’s shopping malls, have filed for bankruptcy during the coronavirus pandemic. 
  • America’s biggest mall owners are increasingly looking to do deals to salvage them. 
  • “I think this is an opportunity for the Simons of the world,” said Scott Stuart, CEO of the Turnaround Management Association. “They’re acting like their own private-equity firms. They are sitting on a lot of cash and they are testing the waters.” 
Big mall owners are looking to do deals to salvage bankrupt retailers
 

Dozens of retailers, some of them the lifeblood of America’s shopping malls, have been pushed to the brink and filed for bankruptcy during the coronavirus pandemic. 

 

Apparel brands like J.Crew, Brooks Brothers and New York & Co. parent company RTW Retailwinds. Department store chains Neiman Marcus, J.C. Penney and Stage Stores. The health chain GNC. The kitchen supplies company Sur la Table. The list goes on. And there are more coming. 

 

Now, it’s some of America’s biggest mall owners that are increasingly looking to do deals to salvage them. 

In many instances, as it plays out, these bankrupt retailers are major tenants in malls, with sprawling store counts. Meanwhile, some of the biggest retail real estate owners in the country, like Simon Property Group, are sitting on cash. A lot of it. On June 29, in an investor update, Simon said it had roughly $8.5 billion of liquidity on its balance sheet, including about $3.5 billion of cash on hand. It issued another $2 billion in senior secured notes on July 7

In one of its latest deals, Simon, which is the biggest U.S. mall owner by the number of malls it operates, has teamed up with the apparel-licensing firm Authentic Brands Group to supply financing to carry Brooks Brothers through bankruptcy.  

The $80 million loan from the duo that refers to itself as Sparc LLC (made up of Simon and ABG) comes, in a rare deal, with no interest or fees. However, the loan offer required the Brooks Brothers’ branding and trademarks be used as collateral to the lenders. And so in the event of an entire Brooks Brothers liquidation, Sparc would keep the intellectual property, according to court documents. 

Meantime, ABG and Simon have put up a stalking-horse bid of $191 million for the bankrupt denim maker Lucky Brand’s assets. The duo has until July 27 to come up with funding, according to a court document. 

 

And a trio of ABG, Simon and the mall owner Brookfield Properties have also explored acquiring department store chain Penney out of bankruptcy, CNBC previously reported. The three came together before to save the apparel chain Forever 21, which went bankrupt in September 2019, for $81 million. 

The future of Penney is still up in the air, though. As of this week, the company continues to hash out a plan in court with its lenders to emerge from bankruptcy. It has pushed back a key deadline and now has until July 31 to evaluate potential buyers for its business, in a bid to attempt to avoid a complete liquidation. 

ABG Chief Executive Jamie Salter told CNBC last month that he viewed Penney as a brand worth saving. He said the same about Brooks Brothers. 

ABG already owns a slew of other once-defunct retailers including Barneys New York, Nautica, Nine West and Juicy Couture. Partnering with someone like Simon then adds expertise in real estate, in addition to brand licensing and apparel manufacturing, Salter said. 

A representative from Simon did not respond to a request for comment. 

‘Acting like their own private-equity firms’

The Covid-19 pandemic, which temporarily forced malls across the country shut and continues to keep some of them dark, has clearly presented a very unique buying event for these landlords. Analysts say they’re getting these deals on the cheap. 

“I think this is an opportunity for the Simons of the world,” said Scott Stuart, CEO of the Turnaround Management Association. “They’re acting like their own private-equity firms. They are sitting on a lot of cash and they are testing the waters.” 

“I think Aeropostale laid the foundation that this could work,” Stuart added. 

In 2016, Simon and the mall owner General Growth Properties, which is now owned by Brookfield, teamed up with ABG to rescue the embattled teen apparel retailer. The three won an auction to buy the Aeropostale brand out of bankruptcy court, salvaging hundreds of stores, for a price tag of $243.3 million. 

Roughly a year ago, during a conference call with analysts, Simon CEO David Simon explained the company had “made a ton of money” in its Aeropostale deal

“I think it’s very possible — we’re going to be very smart about it,” Simon said at the time, when asked if he would consider investing in more of the company’s tenants. “We’re certainly as good as the private-equity guys when it comes to retail investment. And so, I wouldn’t rule it out.” 

“We’ll work together on other distressed situations.” But, he added, “we’re only going to buy into companies that we think have brands and that have the volume that is worth doing it.” 

Still, not everyone loves the idea. Some real estate analysts have said Simon could be moving too far away from its core expertise, in real estate. 

“I think investors would rather see them spend capital on their business,” Mizuho Securities analyst Haendel St. Juste said. 

“It feels like it is a slippery slope,” he said. “I get it, these are large tenants. But that’s not your business.” 

“I didn’t like it when they bought Aeropostale,” he added. 

 
America will emerge from coronavirus pandemic with fewer department stores
 

Brookfield is seemingly looking to do more deals, too. Back in early May, the company said it had created a new fund and was targeting spending as much as $5 billion to help struggling retailers. 

“The view is, these are good brands that need to be preserved,” said Byron Carlock, the head of PwC’s U.S. Real Estate practice. 

“Now, is there a new normal that better manages the financial risk of being in retail?” he said, referring to real estate companies versus private-equity firms. 

“Take Brooks Brothers,” Byron said. “Nothing is wrong with the brand. The owners just over-expanded.” 

Private-equity firms have been chastised in the past for buying retailers, saddling them with debt, not managing the businesses well, and ultimately pushing them into bankruptcy. When it filed for bankruptcy earlier this year, J.Crew had roughly $1.7 billion in debt, and Neiman Marcus almost $5 billion, from leveraged buyouts led by private equity firms. 

Two family-owned investment firms that have made a name for themselves in the mall world, Namdar Realty Group and Mason Asset Management, are taking a similar view on investing in retail. 

The two have come together over the years to amass a portfolio of dozens of suburban shopping malls. Their business strategy, in sum, is to acquire distressed assets from either banks or other owners, and refurbish them enough to keep them running. 

Even during the pandemic, they have acquired three malls — Belknap Mall in Belmont, New Hampshire; Mesilla Valley Mall in Las Cruces, New Mexico; and Meriden Mall in Meriden, Connecticut, Mason Asset Management President Elliot Nassim said. 

And they’ve also acquired a local furniture chain, Jennifer Furniture, out of bankruptcy, along with the Grand Rapids, Michigan-based movie theater chain Goodrich Quality Theater, Nassim said, not disclosing the financial terms of those deals. 

“We are looking at investing in more retail chains to become a little more vertically integrated,” Nassim explained. “We believe in the future of brick and mortar.” 

“We look at it as a wonderful opportunity to be involved in a new sector with promising returns,” he added. 

Still, with so few case studies on these types of deals, analysts agree it needs to play out over more time to see if this strategy really can work. 

“The advantage of Simon is they are so big, they can make these bets,” Green Street Advisors mall analyst Vince Tibone said. “But they have to be selective.” 

Dozens of retailers, some of them the lifeblood of America’s shopping malls, have been pushed to the brink and filed for bankruptcy during the coronavirus pandemic. 

 

Apparel brands like J.Crew, Brooks Brothers and New York & Co. parent company RTW Retailwinds. Department store chains Neiman Marcus, J.C. Penney and Stage Stores. The health chain GNC. The kitchen supplies company Sur la Table. The list goes on. And there are more coming. 

 

Now, it’s some of America’s biggest mall owners that are increasingly looking to do deals to salvage them. 

In many instances, as it plays out, these bankrupt retailers are major tenants in malls, with sprawling store counts. Meanwhile, some of the biggest retail real estate owners in the country, like Simon Property Group, are sitting on cash. A lot of it. On June 29, in an investor update, Simon said it had roughly $8.5 billion of liquidity on its balance sheet, including about $3.5 billion of cash on hand. It issued another $2 billion in senior secured notes on July 7

In one of its latest deals, Simon, which is the biggest U.S. mall owner by the number of malls it operates, has teamed up with the apparel-licensing firm Authentic Brands Group to supply financing to carry Brooks Brothers through bankruptcy.  

The $80 million loan from the duo that refers to itself as Sparc LLC (made up of Simon and ABG) comes, in a rare deal, with no interest or fees. However, the loan offer required the Brooks Brothers’ branding and trademarks be used as collateral to the lenders. And so in the event of an entire Brooks Brothers liquidation, Sparc would keep the intellectual property, according to court documents. 

Meantime, ABG and Simon have put up a stalking-horse bid of $191 million for the bankrupt denim maker Lucky Brand’s assets. The duo has until July 27 to come up with funding, according to a court document. 

 

And a trio of ABG, Simon and the mall owner Brookfield Properties have also explored acquiring department store chain Penney out of bankruptcy, CNBC previously reported. The three came together before to save the apparel chain Forever 21, which went bankrupt in September 2019, for $81 million. 

The future of Penney is still up in the air, though. As of this week, the company continues to hash out a plan in court with its lenders to emerge from bankruptcy. It has pushed back a key deadline and now has until July 31 to evaluate potential buyers for its business, in a bid to attempt to avoid a complete liquidation. 

ABG Chief Executive Jamie Salter told CNBC last month that he viewed Penney as a brand worth saving. He said the same about Brooks Brothers. 

ABG already owns a slew of other once-defunct retailers including Barneys New York, Nautica, Nine West and Juicy Couture. Partnering with someone like Simon then adds expertise in real estate, in addition to brand licensing and apparel manufacturing, Salter said. 

A representative from Simon did not respond to a request for comment. 

‘Acting like their own private-equity firms’

The Covid-19 pandemic, which temporarily forced malls across the country shut and continues to keep some of them dark, has clearly presented a very unique buying event for these landlords. Analysts say they’re getting these deals on the cheap. 

“I think this is an opportunity for the Simons of the world,” said Scott Stuart, CEO of the Turnaround Management Association. “They’re acting like their own private-equity firms. They are sitting on a lot of cash and they are testing the waters.” 

“I think Aeropostale laid the foundation that this could work,” Stuart added. 

In 2016, Simon and the mall owner General Growth Properties, which is now owned by Brookfield, teamed up with ABG to rescue the embattled teen apparel retailer. The three won an auction to buy the Aeropostale brand out of bankruptcy court, salvaging hundreds of stores, for a price tag of $243.3 million. 

Roughly a year ago, during a conference call with analysts, Simon CEO David Simon explained the company had “made a ton of money” in its Aeropostale deal

“I think it’s very possible — we’re going to be very smart about it,” Simon said at the time, when asked if he would consider investing in more of the company’s tenants. “We’re certainly as good as the private-equity guys when it comes to retail investment. And so, I wouldn’t rule it out.” 

“We’ll work together on other distressed situations.” But, he added, “we’re only going to buy into companies that we think have brands and that have the volume that is worth doing it.” 

Still, not everyone loves the idea. Some real estate analysts have said Simon could be moving too far away from its core expertise, in real estate. 

“I think investors would rather see them spend capital on their business,” Mizuho Securities analyst Haendel St. Juste said. 

“It feels like it is a slippery slope,” he said. “I get it, these are large tenants. But that’s not your business.” 

“I didn’t like it when they bought Aeropostale,” he added. 

Brookfield is seemingly looking to do more deals, too. Back in early May, the company said it had created a new fund and was targeting spending as much as $5 billion to help struggling retailers. 

“The view is, these are good brands that need to be preserved,” said Byron Carlock, the head of PwC’s U.S. Real Estate practice. 

“Now, is there a new normal that better manages the financial risk of being in retail?” he said, referring to real estate companies versus private-equity firms. 

“Take Brooks Brothers,” Byron said. “Nothing is wrong with the brand. The owners just over-expanded.” 

Private-equity firms have been chastised in the past for buying retailers, saddling them with debt, not managing the businesses well, and ultimately pushing them into bankruptcy. When it filed for bankruptcy earlier this year, J.Crew had roughly $1.7 billion in debt, and Neiman Marcus almost $5 billion, from leveraged buyouts led by private equity firms. 

Two family-owned investment firms that have made a name for themselves in the mall world, Namdar Realty Group and Mason Asset Management, are taking a similar view on investing in retail. 

The two have come together over the years to amass a portfolio of dozens of suburban shopping malls. Their business strategy, in sum, is to acquire distressed assets from either banks or other owners, and refurbish them enough to keep them running. 

Even during the pandemic, they have acquired three malls — Belknap Mall in Belmont, New Hampshire; Mesilla Valley Mall in Las Cruces, New Mexico; and Meriden Mall in Meriden, Connecticut, Mason Asset Management President Elliot Nassim said. 

And they’ve also acquired a local furniture chain, Jennifer Furniture, out of bankruptcy, along with the Grand Rapids, Michigan-based movie theater chain Goodrich Quality Theater, Nassim said, not disclosing the financial terms of those deals. 

“We are looking at investing in more retail chains to become a little more vertically integrated,” Nassim explained. “We believe in the future of brick and mortar.” 

“We look at it as a wonderful opportunity to be involved in a new sector with promising returns,” he added. 

Still, with so few case studies on these types of deals, analysts agree it needs to play out over more time to see if this strategy really can work. 

“The advantage of Simon is they are so big, they can make these bets,” Green Street Advisors mall analyst Vince Tibone said. “But they have to be selective.” 

Author:

Lauren Thomas@LAURENTHOMAS

No Income No Asset Personal Lines of Credit

for

Startup, New Businesses or  Personal Use

Funding Up to $250,000 

Fund starts in 7-10 Business Days.

680 FICO

Co-signer OK

NO INCOME DOCUMENTATION

100% UNSECURED

BK must be over 4.5 years

Collections, Judgments, Late Payments must be over 12 months

Learn More

100’s of Lenders in One Place
Ebizmore.com

Providing the difference in order for you to obtain the best rate and terms for your clients.
We Make It Possible

More Lenders
More Programs
Underwriting Specialist Review
Faster Approvals
Faster Closings
Daily Updates
  and more

Close More – Earn More

More Programs – More Opportunity

Find Out More 

Contact Us Today

The Fact is that 95% of Small Business was not Prepared for the Pandemic.

Our Clients Were!

More Than An Accounting Service!

Consultant * CFO *Partner

Your Success is Our Number 1 Focus.

Bank & CC reconciliation,
Accounts Payable
Accounts Receivable
Financial Reports
Payroll
QuickBooks catchup/cleanup
Invoicing
Compliance reporting
QuickBooks Online
Much, much, more.
+++Business Credit Builder

Save up to $24,000 per year!

Contact Business Viability Solutions.

Save On Your Credit Card Processing

Increase Profits
0% Markup
Free Terminal Placement
Next Day Deposits
No Hidden Fees
No Cancelation Fee
Secure Payments
Full EMV/PCI Compliance

Lowest Rates Guaranteed

Same day / Next day Funding

Commercial Hard Money

Bridge Loans

  • Close in 5-7 Days
  • 65% ++ LTV
  • Loan Terms from 3 months to 5 yrs+
  • Rates Starting in the 7’s
  • Interest Only
  • All Property Types

Fast and Easy

Ebizmore for all your investment real estate financing needs.

Learn More – Do More – Earn More with ebizmore

Learn * Download Forms * Submit

Register Now

or

Whether you are a Realtor, Financial Planner, Residential Loan Officer, Accountant, or Entrepreneur you can start a lucrative career in Business and Commercial Real Estate finance.

  • Free Training
  • Underwriting Guidelines
  • Access to all forms and apps
  • Easy Online Submission to 100’s of lenders
  • Your Own Support Professional
  • All the Tools you need 

All the Support you deserve

All the Potential you can Reach

Learn More * Do More  * Earn More

And Register
or

Email  Us

And A Support Professional Will Contact You To Answer any Questions and Get You Started.

Stated Commercial Mortgages

  • Up to 80% LTV
  • 560+ Credit Score
  • Purchase, Refinance, Cash Out
  • Lite, and No Income Documentation
  • 100k t0 $50 million +

Property Types

  • Multifamily
  • Light Industrial/Warehouse
  • Mixed-Use
  • Office
  • Retail
  • Self-Storage
  • Mobile Home Parks
  • Single Family

All Property Types

Ebizmore for all your investment real estate financing needs.

Learn More – Do More – Earn More with ebizmore

Learn * Download Forms * Submit

Register Now

or