Consultant ’ s Corner At the Intersection of Real Estate and COVID : What I Learned During the Pandemic about Restructuring
Cynthia Nelson , Senior Managing Director , FTI Consulting
Editors ’ Note : We are grateful to our Fellow Cynthia Nelson for agreeing to be our inaugural voice for our new Consultant ’ s Corner column , where we look forward to featuring voices of Fellows that come from disciplines other than law .
After mulling over the Column ’ s gracious invitation to contribute to this column , I decided I ’ d share some highlights of my “ pandemic practice ” and offer some observations about this experience--the “ what I learned ” part . 1 To put a finer point on it , I ’ ll be sharing my experiences about real estate restructuring as this is the area in which I primarily focus .
This “ cycle ” ( which , for obvious reasons , really wasn ’ t a cycle in the conventional sense ) is unlike any other most of us have experienced during our professional careers . Mine began with the ’ 81-- ‘ 82 recession and crazy-by-today sky-high interest rates .
During the last twenty or so months , I ’ ve been actively advising stakeholders having interests in the kind of real estate and companies most detrimentally affected by the pandemic . These have included retail real estate and shopping centers , movie theaters , lodging and flexible office space , all of which have suffered devastating and sometimes existential harm on account of the pandemic .
The circumstances are hardly uniform across these property types and enterprises .
Retail : Disruptive and persistent sector trends kick into overdrive
The pandemic served to hasten trends already well underway prior to March 2020 . The shift to e-commerce and changes in consumer demographics and preferences have diminished the role of brick and mortar as retailers ’ primary sales channel . The brute force of the pandemic forced retailers and their lenders and landlords to reckon with reality if they hadn ’ t done so already .
This dynamic was particularly acute for regional shopping malls and the retailers who lease space in them . During 2020 more retailers filed for bankruptcy than in any of the last ten years . In roughly the last twelve months several regional mall REITs which had been teetering pre-pandemic were forced to file for Chapter 11 bankruptcy protection ( PREIT , CBL and Washington Prime Group ). Bankruptcies of regional mall REITs are by no means routine ( as retailer bankruptcies arguably had become ) given that these enterprises had traditionally boasted high quality , performing assets and relatively low leverage . The last major bankruptcy of a regional mall REIT was in 2009 with GGP .
We may have reached something of a stasis in the storm as the retail recovery strengthens and regional mall stock prices
And just to manage expectations , I ’ ve no eureka moments or otherwise profound insights to share . A more apt title of this piece would be “ What I didn ’ t want to admit but finally came to understand more fully .” continued on page 31