Forever 21, the 35-year old trendy teen apparel and accessory global retailer, has filed for Chapter 11 bankruptcy protection, closing a third of its 534 U.S. stores. This could potentially make way for commercial offices, housing or even medical marijuana facilities (yes, brokers have had these inquiries). The retailer has stores in South Florida malls including Aventura, Sawgrass Mills, and the Boca Town Center. Mall owners and shoppers question what impact the loss of these stores will create for commercial real estate.

When One Door Closes…

Although it has not yet been determined which locations are scheduled to close, it is certain that the large square footage often attributed with Forever 21 stores will provide opportunities for new attractions including esports which are live competitive multiplayer video gaming events that draw large crowds. It is no secret that shopping malls are “evolving.” They now place more emphasis on entertainment value as e-commerce platforms replace traditional block and mortar stores.

A Ripple Effect

As with Forever 21, mall owners immediately feel the impact when a struggling retailer cannot meet their lease payments. While a world of opportunity exists for potential commercial space, concern lies in the surrounding retailers and the possible rise of co-tenancy clauses.  These clauses can provide remedies to retailers suffering from decreased income due to reduced foot traffic from loss of an anchor tenant.  Mall owners dread this possibility, as it requires them to offer reduced rent or allow the tenant to break from the lease with minimal penalties, resulting in a financial deficit for the entire establishment. Due to the overwhelming 38,000 square-footage of Forever 21 outlets and the demand for other commercial options, it is difficult to project how the shuttering of a Forever 21 will affect surrounding retailers and what effect that will have on the overall mall itself.

The Future Can Be Bright

With mall vacancies now at a seven-year high and with declining foot traffic, the retail industry has little choice but to evolve. The shuttering and closing of one-third of all U.S. Forever 21 locations gives us opportunities to reinvent real estate and to remember that nothing truly lasts forever.

From the Trenches,

Roy Oppenheim

Originally posted at South Florida Law Blog: Nothing is Forever: The Real Estate Impact of Forever 21’s Bankruptcy Claim https://southfloridalawblog.com/nothing-is-forever-the-real-estate-impact-of-forever-21s-bankruptcy-claim/