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J.Crew Wants to Skip Rent Payments During Its Bankruptcy Proceedings — But Landlords Are Pushing Back

A number of J.Crew’s landlords have pushed back on the bankrupt retailer’s appeal to skip rent payments worth roughly $23 million as it undergoes Chapter 11 proceedings.

More than 15 objections have been filed over the past couple weeks with the U.S. Bankruptcy Court for the Eastern District of Virginia, where the fashion company’s parent, Chinos Holdings Inc., had put in a request to avoid rent obligations in the first couple months of its bankruptcy.

Among the mall operators that raised issues with J.Crew — which in March shuttered its stores in response to the coronavirus pandemic — were Simon Property Group Inc., Grand Place LLC, CBL & Associates Management Inc. and Brookfield Property REIT Inc. In their filings, the landlords argued that the New York-based apparel and accessories chain must pay rent on stores that have since reopened.

Simon Property Group — America’s largest mall operator and current owner of 126 properties leased by J. Crew — noted in its objection that J. Crew’s motion failed to distinguish between properties that have or will reopen and those that remain shuttered.

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What’s more, Grand Place contended that the retailer’s bankruptcy “should not be funded, on an interim basis, by [J. Crew’s] landlords and administered for the benefit of [J. Crew’s] secured lenders without some form of adequate protection being granted to [J. Crew’s] landlords.”

On May 4, J.Crew became the first retailer to file for bankruptcy since the coronavirus pandemic forced the closures of stores across the United States. That same day, it informed the court that paying its monthly lease obligations for roughly 500 of its properties in the first 60 days of bankruptcy is “not prudent or in the best interest” of its estates and creditors.

J.Crew, however, is not alone in its battle with landlords: With the majority of their stores still closed to the public, Gap and Ross Stores, as well as Nordstrom, H&M and Burlington Stores, have skipped out on their rent payments as COVID-19 health crisis throws their balance sheets into disarray. Those moves have left commercial landlords, who have their own mortgage obligations, with few options. Some have taken legal action against their shuttered tenants. Ross and Gap are among the retail firms that have so far been hit with lawsuits over rental payments.

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