Federal Aid Gives Real Estate Bankruptcy Filings Some Relief

Like many things in the economy, bankruptcy filings seem to be stabilizing.

Chapter 11 and real estate bankruptcy filings remained steady in the first quarter of 2021, according to the newest Polsinelli-TrBK Distress Indices Report. In Q1, filings only dropped by five points. Polsinelli says that is a side effect of the many federal aid and nationwide orders regarding rent freezes/forgiveness, eviction moratoriums and landlord/tenant relations. Since 2010, The Polsinelli-TrBK Distress Indices have tracked the increase or decrease in all Chapter 11 filings with more than $1 million in assets.

While overall real estate filings went down, there are still issues in the healthcare sector. The number of filings in the sector were low in Q1, but it is still dealing with high filings in past quarters.

“The number of bankruptcy filings in the healthcare industry is now lower than we’ve seen in years,” Polsinelli Shareholder Jeremy Johnson, a bankruptcy and restructuring attorney and co-author of the report, said in a prepared statement. “I expect a precipitous drop in the distressed health care index over the next few quarters unless there is very significant activity this quarter.”

Overall, the Chapter 11 Distress Research Index was 83.60 for Q1, a three-point decline since Q4 2020. However, compared with Q1 2020, the index has increased more than 29 points. Compared with the benchmark period of the fourth quarter of 2010, it is down just over 16 points.

On the real estate side, the distress index hit 23.47 in Q1. While that was a decrease of nearly five points since the last quarter, it was a seven-point decrease compared to the same period a year ago. Compared with the benchmark period of Q4 2010, it is down just over 76%.

Real estate filings increased the most in the Southeast (a 36.13% increase), the Southwest (a 24.09% increase) and the Northeast (a 17.52% increase). All other areas posted gains of less than 10%.

In health care, the distress index was 396.67 in Q1, which was a 20-point decline since the last quarter. Yet, it has increased more than 163 points over the same period one year ago. Compared with the benchmark period of the fourth quarter of 2010, it is up 296 points. In every quarter since the third quarter of 2015, the index has exceeded the benchmark, often by significant margins.

Bankruptcies across all sectors of the economy, meanwhile, continue to increase.

Nearly double the number of companies entered bankruptcy in March than in February, the most significant number in a single month since July, according to S&P Global Market Intelligence.

A total of 61 companies entered bankruptcy that month, and while the pace of filings has slowed year-over-year, that number hearkens back to the dog days of summer 2020. As of March 31, a total of 138 U.S. companies have filed bankruptcy; last year, 153 had filed by the same date.