Minimize Losses After A Commercial Real Estate Tenant Enters Chapter 11
December
29, 2011
You’re a commercial retail estate manager. One of your Tenants informs you that they are filing for Chapter 11 bankruptcy. What can you do?
First, don’t panic! As a commercial
retail estate manager, you can help
mitigate damages by becoming familiar with the process. First, start thinking
about the market demand for the space; the current commercial
retail estate market rent and how that
compares to the lease rent; how the loss of the tenant could impact the owner’s
obligations to the mortgagee; and the costs to replace the Tenant.
When a commercial retail estate tenant files for Chapter 11, you must act quickly by filing a Notice of Appearance and Demand for Notices through counsel. This allows you to receive notification of important events in the case, including the Tenant’s submission of a budget in order to secure a debtor in possession financing. You can use this information to ensure that the rent is included in the tenant’s budget, and to ascertain whether the tenant is capable of fulfilling outstanding commercial retail estate lease obligations.
The Tenant will have an opportunity to “assume,” “reject” or “assign” its leasehold interests.
A commercial retail estate Tenant who assumes a lease intends to fulfill the remaining lease obligations. Tenants who want to assume leases must:
1. Cure any monetary defaults
2. Compensate commercial retail estate Landlords for damages stemming from monetary defaults
3. Furnish adequate assurances that remaining obligations will be fulfilled
4. Satisfy all remaining obligations
Rejection releases the Tenant from rental payments as well as other continuing commercial retail estate lease obligations. Rejected leases are regarded as having been defaulted just before the bankruptcy filing. When a commercial retail estate lease is rejected, the Landlord is entitled to a rejection damage claim, typically yielding only a fraction of the face value of the claim.
Tenants may assume and then assign a lease to another entity. This typically occurs when the existing commercial retail estate lease is at a below average rent, so the Tenant can sell the lease and earn money for the bankrupt estate. Luckily, the bankruptcy code provides obligations that help protect the Landlord in such cases. Shopping centers in particular are singled out with strict obligations to protect the landlord and the viability of the center.
By understanding the provisions of the bankruptcy code, you can enhance the value of spaces leased to bankrupt Tenants, their Neighbors’ leases and your Owners’ properties. The ability to make the most out of a bad situation is a skill worth cultivating.
Source: IREM
You’re a commercial retail estate manager. One of your Tenants informs you that they are filing for Chapter 11 bankruptcy. What can you do?
First, don’t panic! As a commercial
retail estate manager, you can help
mitigate damages by becoming familiar with the process. First, start thinking
about the market demand for the space; the current commercial
retail estate market rent and how that
compares to the lease rent; how the loss of the tenant could impact the owner’s
obligations to the mortgagee; and the costs to replace the Tenant. When a commercial retail estate tenant files for Chapter 11, you must act quickly by filing a Notice of Appearance and Demand for Notices through counsel. This allows you to receive notification of important events in the case, including the Tenant’s submission of a budget in order to secure a debtor in possession financing. You can use this information to ensure that the rent is included in the tenant’s budget, and to ascertain whether the tenant is capable of fulfilling outstanding commercial retail estate lease obligations.
The Tenant will have an opportunity to “assume,” “reject” or “assign” its leasehold interests.
A commercial retail estate Tenant who assumes a lease intends to fulfill the remaining lease obligations. Tenants who want to assume leases must:
1. Cure any monetary defaults
2. Compensate commercial retail estate Landlords for damages stemming from monetary defaults
3. Furnish adequate assurances that remaining obligations will be fulfilled
4. Satisfy all remaining obligations
Rejection releases the Tenant from rental payments as well as other continuing commercial retail estate lease obligations. Rejected leases are regarded as having been defaulted just before the bankruptcy filing. When a commercial retail estate lease is rejected, the Landlord is entitled to a rejection damage claim, typically yielding only a fraction of the face value of the claim.
Tenants may assume and then assign a lease to another entity. This typically occurs when the existing commercial retail estate lease is at a below average rent, so the Tenant can sell the lease and earn money for the bankrupt estate. Luckily, the bankruptcy code provides obligations that help protect the Landlord in such cases. Shopping centers in particular are singled out with strict obligations to protect the landlord and the viability of the center.
By understanding the provisions of the bankruptcy code, you can enhance the value of spaces leased to bankrupt Tenants, their Neighbors’ leases and your Owners’ properties. The ability to make the most out of a bad situation is a skill worth cultivating.
Source: IREM
DISCLAIMER: This blog has been curated from an
alternate source and is designed for informational purposes to highlight the
commercial real estate market. It solely represents the opinion of the specific
blogger and does not necessarily represent the opinion of Pacific Coast
Commercial.
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