Barclays Research has recently suggested that three major retailers, Big Lots, Express, and Children’s Place, could potentially pose challenges for the struggling commercial real estate market. The research indicates that corporate bankruptcies have been on the rise since the lull caused by the pandemic, with January seeing the highest level of filings since 2020. This trend is concerning for the commercial real estate market, which has already been grappling with falling values and a growing wall of maturing debt.
In February, discount retailer Big Lots reportedly started looking for financing after experiencing years of losses and liquidity issues. Similarly, children’s apparel company Children’s Place began exploring new financing, while fashion retailer Express has been seeking to restructure its debt and potentially file for bankruptcy. These developments have raised concerns among investors in commercial-mortgage bonds, particularly due to the large number of stores operated by Big Lots and Express.
The impact of these potential bankruptcies on the commercial real estate industry can be significant. Bankruptcy filings enable tenants to reject their leases in bankruptcy court, a process that office-sharing company WeWork has been pursuing since its own filing in November. While Barclays notes that Children’s Place tends to occupy smaller stores and has already reduced its physical presence, thereby limiting the future impact of a bankruptcy filing, the larger store networks of Big Lots and Express pose higher risks.
The commercial real estate market has already experienced a 21% decline in values since the peak of the pandemic. Additionally, a wave of maturing debt is posing challenges for both borrowers and lenders, especially against the backdrop of higher interest rates. This situation raises concerns about potential write-offs on soured loans, which could become a growing risk for regional and community banks.
Despite these challenges, shares of Big Lots, Children’s Place, and Express have shown some signs of improvement. On the day of Barclays’ report release, Big Lots’ shares rose by approximately 3.3%, while Children’s Place and Express saw increases of around 28% and 7.1%, respectively. However, it is important to note that all three companies’ shares have experienced significant declines ranging from 37% to 75% since the beginning of the year.
Overall, the increasing corporate bankruptcies in the retail sector, particularly those of Big Lots, Express, and Children’s Place, pose potential challenges for the commercial real estate market. The impact of these bankruptcies could be significant, especially considering the large number of stores operated by Big Lots and Express. As the commercial real estate market continues to face falling values and a growing wave of maturing debt, it remains to be seen how these challenges will be addressed and what the future holds for both retailers and the real estate industry as a whole.
