On July 28, at Pillsbury Winthrop Shaw Pittman LLP in New York City, the AABANY Real Estate Committee collaborated with the AABANY Commercial Bankruptcy & Restructuring Committee to host a continuing legal education program to an audience of over 40 attorneys entitled: “Commercial Leases: Issues Surrounding Distressed Retail Companies.”
- Vincent J. Roldan, Partner at Ballon Stoll Bader & Nadler, P.C.,
- Doug Greenspan, Manager at Keen-Summit Capital Partners LLC,
- Augustus Moy, Managing Partner at the AM Companies, and
- Amol Pachnanda, Partner at Ingram Yuzek Gainen Carroll Bertolotti LLP,
led a discussion on the intersection between real estate and bankruptcy law in the context of distressed retail companies. The panel was introduced by Real Estate Committee Co-Chair and Vice President and Senior Counsel of First Nationwide Title Agency, LLC Margaret Ling. The evening included a discussion on commercial leases and the issues surrounding distressed retail companies from a real estate and bankruptcy perspective. Attendees were invited to ask questions at any time during the panel discussion. Dinner and beverages were offered to attendees courtesy of First Nationwide Title Agency, LLC.
The CLE began with a brief overview of Chapter 11 bankruptcy laws in connection with distressed retail companies. Mr. Roldan explained to audience members that bankruptcy will often arise if there is a downturn in business. The company will then attempt to sell its assets or find a new source of financing. After these two avenues are exhausted, the company will consider filing for bankruptcy. However, filing for bankruptcy is not the be all and end all. Companies now file for bankruptcy as a protective measure or as a business tool. Mr. Roldan emphasized that filing for bankruptcy “does not mean the end, often [companies] will survive.” A significant incentive to file for bankruptcy is to allow companies to escape burdensome leases that drain the company’s financial resources. Real Estate Attorney Mr. Pachnanda further added that companies should beware of lease clauses, such as a “use” clause and an anti-assignment clause that will inhibit a company’s ability to use bankruptcy as a business tool.
The conversation then shifted as company restructuring specialist Mr. Greenspan noted general trends that have contributed to the increase in distressed retail companies, a number that has risen in the last 18 months. As the economy continues to thrive, consumers are beginning to purchase higher end products. Moreover, companies are beginning to invest more into their online infrastructure to account for the increase in online shopping. On a daily basis, Mr. Greenspan will do a brief in-depth analysis of a company to determine if it can thrive with the right restructuring plan. Mr. Moy notes that the goal of distressed retail companies is to reduce their risk exposure. Companies often need to “twist [the] arm” of their building landlords to work out a mutually satisfactory solution.
The conversation continued with the panelists addressing how distressed retail companies can avoid ever filing for bankruptcy. Each panelist agreed that avoiding bankruptcy has become tougher. Mr. Roldan characterized modern retail bankruptcy as a “foregone conclusion.” Companies now have a time period of 210 days to undergo bankruptcy.
Mr. Pachnanda noted that companies should look at their rent clauses and assess the incentives for landlords to reduce exposure. Mr. Greenspan stated that retail companies must convey the message “the threat of filing for bankruptcy is real.” The panelists discussed the use of the “good guy” clause, a clause which allows a company to vacate the premises if the tenant can no longer pay the rent. This clause can help both the landlord and the retail companies reach a mutually beneficial solution by allowing the company to terminate its burdensome lease while the landlord can find another tenant to collect rent from.
The evening ended with the panelists conveying hope for distressed retail companies. Mr. Moy discussed the value in investing in distressed assets. Although the company will be a “leaner version” of itself, more revenue can be generated with investments and restructuring strategies. As a restructuring specialist, Mr. Greenspan can “rightsize” each company’s portfolio. Next, Mr. Pachnanda noted the increase in thriving areas of New York City, where certain spaces are “becoming a destination.” All of the panelists were in agreement that in New York City, location is key.
By the end of the evening, attendees received a better understanding of distressed retail companies and the issues they face in connection with commercial leases. Attorneys were invited to network, connect, and exchange contact information with one another. The event was a huge success thanks to the efforts of key AABANY leaders Vincent Roldan and Margaret Ling.
AABANY applauds the collaboration between its Real Estate and Commercial Bankruptcy & Restructuring Committees.
Write-up by Chris Arcitio