J.Crew yesterday received permission from a bankruptcy judge to delay rent payments by up to two months — despite opposition from more than a dozen landlords.
The retailer, which filed for Chapter 11 protection earlier this month in U.S. Bankruptcy Court for the Eastern District of Virginia, has filed a plan to pay back rent when it emerges from the restructuring process, noted Judge Keith Phillips. Further, the retailer says it must defer on rent in order to adhere to the budget set forth under its $400 million bankruptcy financing package. For these reasons, Judge Phillips said he is allowing the company to defer rent for 60 days.
A number of J.Crew’s landlords — including Simon Property Group Inc., Grand Place LLC, CBL & Associates Management Inc. and Brookfield Property REIT Inc. — had previously argued that the retailer should have to pay rent as stores begin to reopen. In particular, Simon Property Group — America’s largest mall operator and the owner of 126 properties leased by J. Crew — noted in its objection that J. Crew’s motion to defer on rent failed to distinguish between properties that have or will reopen and those that remain shuttered.
As of Tuesday, J.Crew had reopened only seven of its about 500 stores, with the majority of its employees currently furloughed and vendors going unpaid. The company says it plans to reopen the bulk of its fleet by the end of June. In addition to forgoing rent payments, J.Crew has ceased paying other expenses related to its leased properties, including insurance, taxes and maintenance costs, according to a lawyer for Brookfield.
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In recent weeks, a number of retailers — such as Gap, Ross Stores, Nordstrom and Urban Outfitters — have skipped out on rent payments as the coronavirus crisis throws their balance sheets into disarray. With few options available, some commercial landlords have pursued legal action against their retail tenants. Ross Stores and Gap Inc. are among the retail companies to be hit with lawsuits over missed rent.
J.Crew became the first major American retailer to go bankrupt amid the coronavirus pandemic, filing for Chapter 11 protection on May 4. Saddled with a debt load of about $1.7 billion, the retailer had been floundering for several years. J.Crew went private in a leveraged buyout in 2010. Around 2015, the apparel and accessories company took on a massive expansion project and attempted to cater to a more upscale audience in response to shifting consumer preferences and spending habits. The move was largely unsuccessful and, in the years that followed, a new loyalty program, collection launches and the debut of a third-party marketplace were unable to fix such missteps.