May 16, 2011

Distressed Retail Assets

By Sharon Poland, director of business development, Hartman Simons

Linens_n_things_closing Be sure to check out National Real Estate Investor later this week, as there’s going to be a cover story about distressed retail assets — just in time for ICSC. Writer Ben Johnson interviewed Hartman Simons partner Andy Litvak for the piece. While Ben spoke with a host of experts and Hartman Simons will be lucky to score a few quotes, Andy very much enjoyed the discussion. Here are a few topics they covered:



  • Special loan servicers continue to restructure loans with experienced operators and are allowing buyers/investors to assume loans at marked-down values. These reduced loan amounts and modified structures reflect current values.
  • A large portion of retail distress remains in two categories. First, un-anchored centers, typically home to lots of mom-and-pops that have been hit hard by the economy. These centers are usually between 10,000 square feet and 30,000 square feet, and landlords are literally giving away space in some instances. (In Atlanta, much of this carnage is in markets such as Lawrenceville, Norcross and Johns Creek.) Second, power centers, which are a linear lineup of big-box retailers such as PetSmart, Target and Best Buy. Some national big-box players have either gone away or are restructuring through bankruptcy (think Linens ‘n Things, CircuitCity and Borders), triggering co-tenancy clauses.  These clauses allow other tenants to pay reduced rents or even terminate leases if neighbors leave. All this creates a domino effect.
  • For tenants, the bad news is they often must accept weaker co-tenancy clauses and deal with less certainty about who their retail neighbors will be. The upside is they are getting good deals on rents, more tenant improvement dollars and A-locations.
  • Notwithstanding increased fundamentals in the marketplace, investors can still expect plenty of distressed assets to hit the market during the next two to three years.  This is especially true in Atlanta, which is over-retailed. Banks and special servicers are getting more aggressive in taking control of properties through foreclosure and receivership, and there are many troubled properties and looming loan maturity dates.

Want to hear more? Look for NREI, which we expect to hit newsstands sometime this week.


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