NYC Single-Tenant Retail Shows Signs of Distress

New York City single-tenant retail properties are showing increasing signs of distress. While there has been more focus on troubles and bankruptcies among big-box retailers, including Lord & Taylor, J. Crew, and Brooks Brothers, data from DBRS Morningstar found an unusually high level of delinquencies among single-tenant retailers as well. In total, the report found 14 CMBS loans totaling $467.4 million that were either delinquent or in special servicing.

The collateral for a loan at 170 Broadway, a 16,135-square-foot retail condo project occupied by the Gap, is the most significant delinquency among single-tenant retailers. The $70 million loan was transferred to special servicing in July after the tenant stopped paying rent. The special servicer cancelled the tenant’s coronavirus-relief package because of insufficient information, and the Gap filled a lawsuit to prevent the landlord from terminating the lease. Litigation is ongoing.

345 West 14th Street is another example of single-tenant delinquencies. The 8,405-square-foot property is occupied by Columbia Sportswear. The store has been temporarily closed during the pandemic, and the $18.5 million loan was transferred into special servicing in July at the request of the borrower, who was seeking coronavirus relief. The tenant’s lease expired in October, and it is unknown if they will choose to renew.

There are several similar stores of delinquencies among these single-tenant properties, including a $17.3 million loan for 350 East Fordham Road, which is occupied by America’s Kids; a $13.4 million loan for 380 Lafayette Street, which is occupied by bakery and café Lafayette Street Partners; a $12 million loan at 130 Bowery, which is occupied by Le Capitale; a $9.2 million loan for the Norwood House, a private, membership-only club; a $5.6 million loan for 357 West 16th Street, a cocktail lounge; and finally, a $2.6 million loan for 25 West 51st Street, occupied by a restaurant. All of these loans went into special servicing in either June or July, showing a recent increase in challenges for this specific retail segment.

New York City retail, in general, has been gravely impacted by the pandemic. Yelp reports that more than 2,800 businesses have closed during the pandemic, and average rent collection rates have been a paltry 30%. DBRS Morningstar notes that this will become the norm in the metropolitan into 2021 as a result of reduced foot-traffic, temporary relocation outside of the city and work-from-home policies.

Retail rents in New York City were already on the decline at the end of last year, and the pandemic has only further stunted the market. According to REBNY’s Fall 2019 retail report, asking retail rents per square foot declined, even while leasing activity increased.