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One of the big items in Chapter 11 is terminating expensive long-term leases. Since Alamo probably has this as their #1 or #2 expense, they can close locations
by pdq 6y ago
One of the big items in Chapter 11 is terminating expensive long-term leases. Since Alamo probably has this as their #1 or #2 expense, they can close locations without being on the hook for future rent.
- meepmorp 6y agoI'd also expect that this would provide some leverage in renegotiating expensive leases, particularly given the hit commercial real estate has taken during the pandemic. I'd bet many landlords are willing to take a lower paying tenant already in a space, vs trying to fill that space in a low demand market.
- aeternum 6y agoI've read elsewhere that while this seems logical, it often isn't possible for commercial landlords as their loan terms are tied to a given rental price.
- criddell 6y agoDoes this lead to landlords keeping the space empty than lowering the rent?
- splonk 6y agoI can't find the article, but supposedly yes. IIRC the reason was that the landlord's loan terms are dependent on the income from the building, but that number doesn't recalculate until a new tenant comes in, so accepting lower rent can trigger a large cash call.
- bsder 6y agoAyup. In addition, the revenue from a missing tenant can often be added to the end of the mortgage. I've seen retail space in amazingly hot markets be empty for 5+ years now.
- 6gvONxR4sf7o 6y agoThis right here is why i've been less and less enthusiastic about some of the roles credit plays in our society. You get credit assuming the future will be in some range, but then you can get screwed if it deviates. So now you have to fight for it to stay that way, and when shit hits the fan, there's this long chain of dependencies that needs to unwind to allow flexibility. Like it's trading robustness for efficiency.
- aeternum 6y agoYes but efficiency is pretty valuable since we have limited lifespans. Providing the capital to start a company (or build new housing/apts) now rather than in 10-20 years probably does more good than harm overall. It's definitely a balance though, very easy to go overboard.
- meepmorp 6y agoThis is rather dependent on the landlord, obviously, but the actual rental price is often just one component of the overall cost of a commercial lease. In addition to rent, stores often pay fees for common area maintenance, security, etc., and negotiating on these fees is much easier. Depending on the state and legal situation, some landlords actually own liquor licenses that they rent to the lessee for restaurants or bars for a fee. There's a lot of stuff that can done to reduce the costs of a lease beyond just rent reduction.