The embattled mall category absorbed more bad news this week as Brookfield Properties and Neiman Marcus showed further signs of consistent financial stress.
Along with Simon Property Group, Brookfield is the biggest real estate investment trust (REIT) in the U.S., and has been a player in the effort to save JCPenney as a going retail concern. Earlier this week it was widely reported that Brookfield was laying off 20 percent of its staff to deal with a continuing pandemic-fueled cash crunch resulting from tenant bankruptcies and uncollected rent. But subsequent reports put the crisis at a higher level. The Financial Times reported that Brookfield is ready to start selling off underperforming properties in its portfolio.
According to the FT, an internal email from Brookfield CEO Jared Chupaila said job cuts were necessary “to align with the future scale of our portfolio.” The company revealed in June that it had collected only 35 percent of the rent due in the second quarter.
“For many years we have stated both publicly and privately our plan to reduce the size and further improve the quality of our portfolio by opportunistically disposing of assets,” Chupaila wrote. “Our experience of the past six months informs us that the opportunity to act on this plan has been accelerated and the time is now.”
The developments have been substantiated by financial trouble at one of the company’s properties in Kentucky. According to real estate news site The Real Deal, Brookfield is over 90 days past due on its $90 million loan for the Florence Mall in northern Kentucky. The property was sent to special servicing in July for a potential negotiation with the lien holders, and is usually seen as the last move before a possible default on the property.
Commercial real estate (CRE) loans in bank portfolios are showing stress related to the economic downturn and signs that some borrowers are already expecting to default on their mortgages, according to real estate analytics company Trepp.
“The overall delinquency rate increased 65% from 0.36% to 0.59%, which is a material increase but generally within the expected range given the current economic conditions,” says Trepp. “The current delinquency rate stands at the highest level since the recovery period after the last recession but still well below the 9% delinquency rate for CRE loans at the peak of the financial crisis. However, there are signals in the data that some borrowers may be strategically defaulting on their loans which could feed a wave of foreclosures in the coming four to six quarters.”
All this comes at a time when anchor tenants continue to struggle. WWD reported Thursday (Sept. 24) that Neiman Marcus will lay off an unspecified amount of its approximately 12,000 employees at Neiman and Bergdorf Goodman.
“This change is substantial and incredibly difficult, but we must ensure we have the right structure and right size team in place that matches our reduced financial forecast,” Geoffroy van Raemdonck, chief executive officer of the Neiman Marcus Group, wrote in a letter to vendors, a copy of which was obtained by WWD. “We are continuing to evaluate every part of our business to ensure we are positioned for long-term success. Through our ongoing evaluation of the business, we have identified areas within our organization that need to be further streamlined.”