In the past two years alone, Hilco has successfully repositioned more than 9,000 retail leases in the U.S.  Currently, Hilco is restructuring 1500 leases (more than 50% in malls).  Based upon the results Hilco has recently generated for our retail clients (and the trends outlined below), and our real time discussions will all major and Tier 2 mall and off-mall landlords, retailers are in a stronger position than ever before to strategically reposition their real estate portfolios in order to maximize lease savings (i.e. significant EBITDA improvement), improve lease “flexibility,” and mitigate/minimize liabilities.   Although there are countless nuances that can’t be adequately articulated within this overview (and every retailer circumstance is different), from a macro-retail real estate standpoint, we’ve never seen environment like this.

• Leverage

  Generally speaking, leverage is moving towards the tenant’s favor (even those with strong balance sheets) as landlords are getting nervous.This unease is a result of the recent wave of retail bankruptcies (and changes in Bankruptcy Code), store closings, declining mall traffic, and a host of negative retail and macro-trends.And for those landlords who are not nervous, they soon will be as store closing (and other trends) are expected to continue (and perhaps accelerate) in the coming year.



• Risk Management

  Landlords are becoming more flexible and engaging in a more “partnership-like” manner.This includes Simon, GGP, Macerich, Kimco, DDR, etc.Historically, landlords would impose unreasonable “quid pro quos” when approached by tenants seeking rent relief, term shortening, etc.Landlords are beginning to realize they can no longer afford to solve an immediate tenant problem while creating another one down the road, as the long-term success of their malls will require strategic co-management (between landlord and tenant) of downside risk.



• Strategic Approach

  Retailers who havea “story to tell” (those who are in transition / turnaround), have the greatest opportunity (after truly distressed companies) to obtain rent reductions, term shortenings, terminations, assignments, etc.That being said, strategic portfolio repositioning in this (or any) environment cannot be approached from a simple, “market rent” perspective.To maximize value and savings, it is critical for retailers to identify and strategically apply all possible leverage points.Business strategy must be combined with real estate strategy and then merged with site-by-site occupancy cost goals.In addition, the messages delivered to landlords must be carefully / artfully crafted and timed.By way of example, landlords are more conscious of mitigating risk / downside than ever before and this needs to be reinforced in a responsible manner in the negotiation process.



• Comprehensive Approach

  While many retailers often focus on the most problematic / underperforming locations, our strong recommendation and experience is that retailers should develop a comprehensive strategic plan for all sites concurrently in order to take advantage of the significant negotiating leverage environment that exists.

Case Studies:

The lessons learned and economic results from the following recent Hilco engagements further reinforce our belief that there has never been a better opportunity for retailers to successfully reposition their real estate portfolios.

BCBG

Hilco Real Estate was engaged by BCBG MaxAzria to develop and execute a comprehensive repositioning of the Company’s retail leasehold portfolio in conjunction with its corporate restructuring and recapitalization.  Hilco worked collaboratively with BCBG and its constituents to develop a strategic plan and  coordinate a multi-phased landlord negotiation process in order to secure lease restructures, renewals or terminations for the majority of their 500+ retail store portfolio throughout the U.S. and Canada.  To date, Hilco has secured in excess of $25 million in lease savings for BCBG.

CONFIDENTIAL RETAIL CLIENT

Hilco was engaged in early 2015 by a healthy, privately-held (sponsor-owned w/public debt), mall-based retailer to develop and execute a strategic lease repositioning plan for more than 800 of the company’s leased locations.  

• Insight - Although this process is in the early stages, the number of deals we’ve been able to negotiate at this point in the process are significantly greater than comparable transactions in the last year or two.This suggests landlords are more willing to deal.

CONFIDENTIAL RETAIL CLIENT

In late 2014, Hilco was engaged by healthy, (strong cash position, no debt) publicly-traded retailer to develop and execute a strategic disposition plan (a combination of terminations and subleasing/assignments) for more than 60 of the company’s 400+ locations. 

• Insight – The subleasing/assignment engagement has generated interest from a number of retailers and landlords are eager to fill their spaces.The lease termination portion of the engagement has revealed a landlord willingness to consider and accept buyout offers at numbers agreeable to the tenant.There has also been less “back and forth” (offers/counter-offers) and deals are getting done quicker.