Retail Landlords go Shopping for Bankrupt Chains

Article originally posted on Phoenix Business Journal on February 12, 2020
Property executives are unlikely stewards of youthful clothing brands. But Forever 21 is to be subsumed by two of its largest landlords after retail specialists balked at the prospect of reviving the fortunes of the distressed fast-fashion company.

A Delaware bankruptcy judge this week gave the go-ahead to a rescue bid from Simon Property Group and Brookfield Property Partners, a highly unconventional transaction that shows how turmoil in retail is upending long-standing business practices.

The shopping centre owners have teamed up with BlackRock-controlled Authentic Brands, a licensing specialist that owns Sports Illustrated magazine, to buy the chain out of bankruptcy for about $80m and an agreement to assume some of its liabilities.

Jon Goulding, Forever 21’s chief restructuring officer, told the court that the alternative was an outright liquidation of the business, which before its bankruptcy filing in September employed about 32,800 people and operated almost 800 stores worldwide.

As of this week, the retailer had only $5m of cash left — nothing like enough to cover the $24m it owed in rental payments for February.

For critics, the landlords’ decision to prop up a struggling tenant sounds the latest alarm bell about bricks and mortar retail. “It shows how weak the sector is,” said David Tawil, president of the hedge fund Maglan Capital.

Forever 21’s struggles threaten to exacerbate a developing crisis in US shopping malls, which have been particularly hard-hit by a wave of store closures and bankruptcies of household names including Sears and Toys R Us. By the end of last year shopping centre vacancies reached the highest level in at least two decades, according to Reis Moody’s Analytics.