Real Estate Watch: Simon Property Group Unleashes The Lawyers

The gloves are off in the retail landlord leasing battle, with Simon Property Group now suing mall tenants who aren’t paying their rent. On Tuesday (July 14), the country’s biggest retail real estate investment trust filed a lawsuit against Eddie Bauer for $6.2 million in missed rent payments. The chain has not paid rent since April, according to records filed in federal court.

Last month, Simon Property Group filed a similar lawsuit against Brooks Brothers seeking $8.7 million. However, according to the real estate trade site The Real Deal, those lawsuits pale in comparison to the Gap. In early June, Simon sued the Gap for more than $65.9 million in missed rent. The Gap leases more than 400 properties from Simon and is its biggest tenant in terms of rent.

According to The Real Deal, “In June, national chain retailers paid 68 percent of their rent, according to a report from Datex Property Solutions. That was up from the 58 percent that chains paid in May, according to Datex, which surveyed 141 of the largest retail chain stores across the country. Landlords can thank the widespread reopenings, the federal government’s Paycheck Protection Program loans and rent relief agreements that landlords worked out with their tenants, Datex CEO Mark Sigal noted.”

Other retail real estate analysts are a bit more optimistic. According to David Stern,  founder and president of Townhouse Partners, a leading real estate due diligence firm, there are sectors of stability, including TJX Companies, dollar stores, home improvement stores, convenience stores, drugstores and groceries.

“Supermarket chains such as Aldi and Lidl are expanding, which will assist the recovery,” noted Stern. “Shoppers have come to expect discounts, and Fitch Ratings estimated discretionary retail spending could decline 40 to 50 percent in the first half of 2020. Geography will factor in, as states dependent on tourism, travel, energy and manufacturing are expected to see a slower rebound. COVID-19 has spurred significant eCommerce growth, which is up 31 percent from a year ago. In a recent report, CBRE estimated the need for another 500 million square feet of industrial space from increases in online demand.”

Stern likes what Ingka Group, operator of IKEA stores, is doing. The company plans to bring its Ingka Centre mall concept to the U.S. Targeting urban locations that can support digitally native brands, Ingka is seeking existing malls, department stores, or old post offices in major U.S. cities.

“Future centers are planned to be mixed-use meeting places with a wide range of facilities and services, including healthcare, education, festivals, events and leisure activities,” said Stern. “Although the COVID-19 threat affords Ingka an opportunity to acquire assets cheaply, the pandemic will be a challenge to this format.”

With lockdowns, retail bankruptcies and continued mall issues, many real estate analysts have lost their taste for retail as an investment, unless it’s for grocery-anchored projects.

“COVID-19 and the ensuing recession are accelerating trends that are changing the makeup of most of the traditional real estate sectors and beefing up niche asset types, such as digital, that now are considered as only appetizers,” according to the Pensions & Investments news site. “In retail, grocery-anchored centers are expected to endure, while a greater number of malls are likely to be converted into multiuse properties, with department store spaces turned into distribution centers or apartment complexes, industry executives say.”