Twenty large retail companies sought bankruptcy protection in 2020 which is the most since the global financial recession in 2008, according to a recent Bloomberg article.
However, the worst may be yet to come. Many experts are pinning Q2 in 2021 when the carnage from the pandemic will be at its worst. Governments have stimulated and utilized no eviction or foreclosure laws which eventually will begin to expire and the true depth of the economic damage will become evident.
The scariest piece of the puzzle is how will vital small business that drives our economy survive this. Dozens – if not more – will shutter their doors for every J.C. Penny or Neiman Marcus that files bankruptcy. Other reports are suggesting that 1-in-6 restaurants will not survive 2021 and industry people we have spoken with fear that may be too optimistic.
That’s a pretty dismal picture being painted.
So what does this mean?
Honestly, I don’t have that answer. The most important thing in this entire discussion is the cost of money and where it goes.
There has been a push in DC to cease some financial policies that are holding interest rates low. While we all know they are artificially low and cannot stay at that rate forever, to make adjustments to the rate now could be catastrophic to the economy. That doesn’t sound any better …
Allow me to explain. The retail strip center owner has a mortgage that – probably – resets annually. Meanwhile the shops in the center are using their line of credit as an emergency lifeline to cover payroll and keep the door open. In 2008 when the recession hit the banks froze at best and called these line of credits. Which would lead to a jump in unpaid rents. While at the same time the retail center’s mortgage payment just went up and with less income and more expenses the expectation is their will be a lot of owner handing the keys back to the bank.
The silver lining could be that prices in commercial real estate will plateau and with banks owning more property could even provide an opportunity for some deals in the market.