3 December 2020

Retail Eviction Proceedings Pick Up as Economy Restarts

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Proceedings for the eviction of retail tenants are picking up across the country as courts reopen and states’ moratoriums on evictions are expiring or getting curtailed as the economy reopens.

In Miami, a luxury-shopping-center landlord began legal proceedings to evict Saks Fifth Avenue two weeks ago for nonpayment of rent amounting to $1.9 million as of early July.

In other parts of the country, smaller retail landlords also have filed lease termination and eviction notices to restaurants, bridal shops, entertainment operators and co-working tenants that haven’t paid rent and weren’t able to come to mutually agreeable modifications to their leases. Before the pandemic, most of these disputes end up getting resolved before the sheriff throws them out, but lawyers said they are seeing higher volumes of disputes which could lead to more evictions.

“We hope and think that the outcome of the lawsuit is that Saks would come to its senses and pay its rent in full. If Saks still doesn’t do so, we’ll have a whole host of other options for the space,” said Matthew Whitman Lazenby, chief executive officer of Whitman Family Development, a private company that owns the ritzy Bal Harbour Shops in Miami.

Saks Fifth Avenue has a ground lease with the outdoor mall and pays percentage rent, or a percentage of sales as rent. Compared to fixed rents, such lease structures already have built-in protections if sales fall. “It’s perplexing,” said Mr. Lazenby. Bal Harbour Shops was closed from mid-March until the third week of May, and Saks Fifth Avenue recorded stronger sales in June this year compared with last year, he said.

Tens of thousands of leases have been modified, including deferrals or discounts, landlords say, in exchange for lease extensions or other concessions.

“Unlike the majority of our landlord partners, Matthew Lazenby and the Whitman family have not acted in good faith. Not only have they chosen not to adequately assume their fair share of the damages created by the global health crisis still gripping our nation, they have used the press and legal system to bully tenants,” said a Saks Fifth Avenue spokeswoman, adding that the company has been able to work with other landlords “to amicably and logically share the losses incurred during the pandemic.”

“For many years, Saks has been a significant part of the success of Bal Harbour Shops, and we expect to continue to be part of that success for a long time to come,” the spokeswoman added. The luxury-department-store operator, whose parent company Hudson’s Bay Co. went private in early March, had a hard time before Covid-19 competing with online upstarts and other rivals.

While overall retail rent collections have improved to 77% in July from around 54% in April, some tenants, particularly from the apparel, fitness and theater categories, have continued to struggle with payments, according to data from Datex Property Solutions, a real-estate data firm that tracks rent collection on thousands of properties across the country.

During the coronavirus-shutdown period that started mid-March and extended to as late as August in some cities, tenants have implored their landlords for deferrals and lower rents to stay in business. States also imposed moratoriums on commercial-real-estate evictions, which offered temporary respite until they expire. New York Gov. Andrew Cuomo extended the state’s moratorium until Sept. 20 from a previously extended Aug. 20 deadline.

Landlords said they have modified tens of thousands of leases over the past few months, including deferrals or discounts in exchange for lease extensions or other concessions, such as the removal of clauses that prohibited certain types of tenants in the neighboring space, such as direct competitors or other uses of common-area space. But for some, negotiations reached a stalemate and landlords said they have no choice but to resort to litigation.

“It’s an unfortunate but necessary tool to enforce the lease,” said Derek Waltchack, partner at Shannon Waltchack, a real-estate landlord based in Birmingham, Ala., with more than 400 tenants across 64 properties. “We also have to balance the expense of securing new tenants versus working with our tenants and providing some rent deferrals.”

Shopping at Bal Harbour stores continues in Miami amid the pandemic. An Alabama landlord says his firm lost 10 tenants, mostly bars and restaurants, due to the coronavirus.

Mr. Waltchack said his firm has taken legal action against more tenants for missed rent payments, mostly bars and restaurants, compared with a year ago. He added that the majority of his tenants would subsequently pay the rent late rather than get evicted.

He said his firm lost 10 tenants, mostly bars and restaurants, due to the Covid-19 pandemic.

In Minneapolis, Eric Ruzicka, a partner at Dorsey & Whitney LLP, said his law firm has commenced around 30 eviction filings for commercial tenants, including restaurants, children’s play zones and bridal shops that were hurt by the drop in tuxedo rentals for proms.

He expects most cases to be resolved before trial and that many of his landlord clients still have a desire to work things out. So far, only one, a restaurant, has an eviction trial date set for late September.

“Landlords need to figure out which tenants are going to thrive and make the center better and which ones have been struggling already,” said Mr. Ruzicka. “If it was a good relationship before coronavirus, it’s a salvageable relationship.”

A landlord last month began legal proceedings to evict Saks Fifth Avenue from Bal Harbour Shops in Miami.

—Jim Oberman contributed to this article.

Write to Esther Fung at esther.fung@wsj.com 

Click here for the original article.

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