5Qs for bankruptcy lawyer Mark Indelicato about the future of shopping center tenants

Al Urbanski
Real Estate Editor & Manager
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Mark Indelicato
Mark Indelicato

Over more than 30 years at the firm of Thompson Coburn Hahn & Hessen in New York, Mark Indelicato has surveyed both the unfolding and rebuilding of scores of retail chains. As the legal counsel for the Official Committee of Unsecured Creditors, composed of trade creditors and landlords, he’s sat through meetings with several top retail brands backed up against the wall by the pandemic. We got on the phone with him to hear his assessment of how things might play out in the near future.

Mark, you and your firm played a role in the settlement of bankruptcies that included retailers the likes of Syms, Loehmann’s, and Crabtree & Evelyn.  Has the general tone of such proceedings changed with some of the Chapter 11 filers during the pandemic?
An interesting result of the pandemic is a new, symbiotic relationship between landlord and tenant because, frankly, they need each other desperately. It depends on who you are, though. To the extent malls need the stores, the relationship is good, but when they don’t need them, they’re harsher than they ever were and willing to let them go because they can’t afford to prop up tenants.

So tenants have to take a closer look at where they stand when it comes to renegotiating leases?
A very interesting dynamic has emerged. Some big mall owners have taken part in the acquisition of some of these troubled retail operations. So if you have a mall owner that has a stake in, say, Brooks Brothers, how is another menswear retailer going to enter that mall and expect to effective compete? You’re competing with the landlord on two levels all of a sudden.  

“If interest rates and inflation keep going up, America is going to be taking a pay cut and some retailers are bound to be affected by it.”

How do you see the mall shakeout playing out? Some big operators have been handing malls back to the bank. Brookfield divested of three in May, and Simon turned Town Center at Cobb outside of Atlanta to its creditors.
In the long run, I think you’re going to see the rich get richer and the poor get poorer. Class A malls are upping their games and getting higher foot traffic. People will be attracted to the better malls that have widened their offerings with good restaurants and entertainment, and the hot stores will gravitate to them. The gap between the A’s and B’s is going to grow.

We recently asked several top mall and shopping center owners if the pandemic forever changed their relationship with tenants and several said that they needed to work closer with them in maximizing their sales. Do you see any signs of this from your vantage point?
One of my partners recently represented a retailer with stores in both the U.S. and abroad that were considering filing for bankruptcy. We suggested to the retailer that we first talk to the landlord. Given the cost of a bankruptcy filing, you’re doing your client a disservice if you don’t give a try to working with the landlords first. Are you tipping you hand if you do this? Yes. But it’s hard for a troubled retailer to make it back in this market, so talk to the landlords.

Do you think we’ll now see fewer retail bankruptcies, or do you envision more trouble on the horizon?
My view is that we have flushed three trillion dollars through the economy over the last 18 months and that has propped up a lot of retailers. I expect that in the 2022 Christmas season, we’re going to see another wave of retail bankruptcies. If interest rates and inflation keep going up, America is going to be taking a pay cut and some retailers are bound to be affected by it.