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NEW YORK—The Covid-19 pandemic is dealing a major blow to the already battered retail industry, and the CMBS market has begun to see the fallout.
The retail delinquency rate was 3.89% in early April—higher than any other sector, according to a new analysis of the coronavirus' impact on the retail market by Trepp. And that delinquency rate is expected to climb as data from the second half of April comes in, given that many major retailers have announced they will stop paying rent while they remain closed to shoppers. A large number of retailers missed their April 1 rent payment, Trepp reported.
The number of retail loans with one or more missed payments skyrocketed to 600 on April 20, from just 88 a month ago. The 600 flagged retail loans total $12 billion, and represent 10.6% of the retail loan category. Those figures illustrate the devastating effect social distancing and government-mandated closures are having on brick and mortar retail.
"Retailers that were already on the brink of bankruptcy like Neiman Marcus, Macy's, and more will find it increasingly difficult to stay relevant in an unstable climate as their revenues lower due to forced closures," according to Trepp, which notes that the retail sector is likely to be among the hardest hit by the pandemic. "Depending on the total financial impact caused by the outbreak, we could see a number of large retailers with low reserves go into bankruptcy which will have an impact on the total CMBS universe."
Brick-and-mortar retailers were already facing many challenges, from mall closures to the rise of online shopping, even before they had to close their doors because of the coronavirus. JC Penney and Nieman Marcus have been in the news for potential bankruptcies, and those companies have outstanding CMBS balances of $11.4 billion and $7.3 billion, respectively, according to the Trepp report. Urban Outfitters and Calvin Klein are among the retailers that have stopped paying rent during the shutdown.
The health of the retail loan segment has a large impact on the overall CMBS market. Retail loans are the second-largest segment of the market, behind only office loans. They comprise more than 25% of outstanding mortgage debt in the CMBS world.
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Karen Sloan
Karen Sloan is the Legal Education Editor and Senior Writer at ALM. Contact her at [email protected]. On Twitter: @KarenSloanNLJ Sign up for Ahead of the Curve—her weekly email update on trends and innovation in legal education—here: https://www.law.com/briefings/ahead-of-the-curve/
