Should Mall Landlords Become Lenders to Struggling Retailers?

August 7, 2019Mall landlords accustomed to offering rent reductions to ailing retailers are mulling a new strategy to bolster their own flagging industry: Positioning themselves as lenders to tenants having difficulty staying afloat.Boutique bank PJ Solomon has organized discussions with several mall owners about pursuing such a strategy with troubled retailer Forever 21 Inc., according to people with knowledge of the matter, in what could serve as a model for future transactions within the sector.The talks have centered on converting rent and other liabilities into secured debt that could give distressed companies some breathing room to stay out of court, said the people, who asked not to be identified because the discussions are private.If a retailer later goes bust, the arrangement could give landlords a stronger say in the restructuring process because lenders get higher priority in a bankruptcy, they said. Three years ago, America’s two largest mall operators—Simon Property Group Inc. and General Growth Properties Inc.—were part of a group that bought Aeropostale Inc., preserving more than 200 of the clothing chain’s stores.“Unless the landlords are going to repurpose their properties altogether, they still have to capture the greatest value they can from retail tenants,” said Scott Stuart, chief executive officer of industry group Turnaround Management Association, who has worked on corporate restructurings for 30 years.