Steve Wybo: Spate of store closures spurs debt worries for retail property owners – MiBiz
Steve Wybo was featured in MiBiz‘s article titled “Spate of store closures spurs debt worries for retail property owners.”
Steve Wybo, a senior managing partner in Birmingham at turnaround firm Conway MacKenzie Inc., said he can easily envision a dire scenario ahead for property owners and the large financial institutions that service the debt on commercial mortgage backed securities (CMBS). Many developers have used CMBS to finance their retail real estate deals for more than a decade.
“A commercial property is only as good as its tenants,” Wybo said. “If J.C. Penney (hypothetically) goes out of business or files for bankruptcy and rejects all their leases, you’ve suddenly lost millions and millions of square footage of rental income, which effectively is the net operating income calculated in these debt service coverage ratios.”
Once those stores begin to close as inventory is liquidated, the landlords of the empty big-box stores will need to get creative with backfilling the space to cover their payments, Wybo said.
“When you lose tenants, your income goes down and your debt service is the same,” he said. “We’re seeing that right now.”