Structurally flawed businesses that survived 2020 are in greater danger of imploding in 2021, which could put further pressure on stakeholders in commercial real estate, said Doug Greenspan, a managing director at A&G Real Estate Partners, during a panel at the 2021 Turnaround Management Association Distressed Investing Conference.
“In dealing with the pandemic, all kinds of businesses were temporarily able to hide behind the turmoil in the markets, and enormous amounts of capital were available to them,” Greenspan said. “As a result, the United States just didn’t see the level of distress in 2020 that some observers were expecting—particularly with respect to bankruptcy filings.”
The Feb. 23 session was titled “Navigating the Uncharted Waters of Commercial Real Estate—Deals or Doom?” In addressing the online audience of TMA members, Greenspan predicted that more operators with fundamental flaws will succumb as the year plays out. “Those businesses that were struggling pre-pandemic are going to surface quickly,” Greenspan said. “Unless they can restructure out of court, the pandemic is likely to push them over the edge.”
However, Greenspan also pointed to the potential for successful vaccination campaigns to revive dining and entertainment in some parts of the country, and he noted a continuing shift toward greater cooperation between retailers and landlords. The New York-based real estate executive has extensive experience in restructuring and bankruptcy and has assisted clients in sectors such as retail, hospitality, healthcare and recreation on real estate analysis, dispositions and lease-mitigation.
During his presentation, Greenspan noted that greater distress among commercial real estate tenants will create challenges for investors, especially those that acquired assets at the top of the market.
“Prior to the onset of Covid-19, cap rates in most markets had been compressed for years, without any significant downturn in real estate property valuations,” he noted. “Now we’re starting to see some declining valuations at office and retail properties with significant vacancies. In some parts of the country, office recoveries will be particularly slow, and this clearly will affect nearby retail and restaurant operators as well.”
But smart real estate strategies can lessen the impact of that downward pressure on valuations, he said. Indeed, forward-thinking landlords are already more willing to work with challenged retailers, restaurants and other tenants to help them avoid bankruptcy. A&G has continued to be on the frontlines of such engagements: In 2020, the firm handled negotiations on 13,600 leases across the country, negotiating lower rents on 10,450 and securing terminations on 950.
Greenspan played key roles in A&G’s real estate advisory work on behalf of Ruth’s Chris Steakhouse, and in the GNC and Tuesday Morning Chapter 11 bankruptcy reorganizations. “Everyone at A&G put in a lot of nights and weekends to save 61 clients a total of $1.8 billion on their occupancy costs last year,” he said.
Moving into the second half of the year, Greenspan is optimistic about a recovery—particularly among experiential dining and entertainment concepts that have been hard hit by lockdowns—depending on the progress of vaccination campaigns in different parts of the country. The hospitality sector, too, could see a strong turnaround with the virus finally under control.
“We have seen no shortage of ups and downs during past 12 months, and the situation is still fluid and fragile,” he said. “While I remain optimistic, I also know it doesn’t take much for the trends to swing in the other direction.”
Greenspan is co-chair of the TMA’s NextGen Committee (New York City Chapter). He was joined on the webinar panel by Richard Corbi, Corbi Law; Kristin Going, McDermott Will & Emery LLP; and Joseph Weissglass, Configure Partners. William (Bill) Gallagher of M3 Partners moderated.