Commercial Tenants in Bankruptcy and Rent
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[{"id": "fq8tbgc", "text": "The security deposit becomes part of the bankruptcy estate, so if the tenant is late on the rent payment, take it out of the security deposit until depleted and then have them replenish it or be in breach of contract. \n\nIn California the tenant has a right to sublease, meaning they are responsible for the economic damages of filling the vacant space, unless the landlord has language in the lease prohibiting it, in which case the landlord is responsible for backfilling the space.", "replies": [{"id": "fq8vx3w", "text": "Right that makes sense. I guess my question was pointed more to the \u201cthen what?\u201d If they can\u2019t sublease the space, they\u2019re on the hook for it. Also, if they have a corporate guarantee instead of an SD, or a combo of that and a LoC? Can you also claw back the TI/LC? Do you get paid before the corporate bond holders?", "replies": [{"id": "fq9vs29", "text": "Depends if you think the juice is worth the squeeze. How much is it worth having your lawyer chase this down. \n\nUsually it\u2019s worth changing the locks and moving on if it\u2019s a solo/super small business (blood from a stone).", "replies": [{"id": "fqa61e6", "text": "Right, I'm curious how to do the math on it.  That's why I'm wondering whether you can claw back TI/LC's (would absolutely make the numbers work) and if it's a public company, how much assets they have etc., which is why I'm asking whether the bondholders get paid before landlords. The Chapter 7 vs 11 stuff.  Thanks! \n\nMaybe going through a tenant's full bankruptcy proceeding is a rare experience in general? That's surprising since the other side of the coin- properties going into special servicing-seems fairly common, and will probably more common if the bear market draws out", "replies": [{"id": "fqa6blw", "text": "The other factor is to think if you can re-lease it soon, or the loss of the tenant is the end of the center/property.", "replies": [{"id": "fqa7d28", "text": "Right, but you wouldn't go through the hassle if it gets subleased easily.  I guess I'm thinking of something like a major tenant in suburban office or one of the big box spaces in big-box retail without a grocery anchor that has a unique built-in space that it's not quickly re-leasable without taking an economic loss, but big enough that you can probably extract major $$ from a bankruptcy depending on a few factors. Especially if we have access to the tenant financials.\n\nI feel like everyone knows ways to avoid going through it, which is probably an important skill, but no one knows what's actually done in it.  My firm is pretty conservative in its deals, so it's not going to be something we're doing soon, and the few that happen are probably in good locations that can be leased easily.  Would love input from people down the risk spectrum, but maybe it's outside Reddit CRE's expertise? I'd love to read more about it but no one can seem to point me in the right direction", "replies": [{"id": "fqa88lo", "text": "It's hard for me to imagine a class A renter with enough $$$ in bankruptcy proceedings to make it worth chasing in class C space that won't rent out easily (less than a 12-18 month time horizon for 50,000 sq feet or more). \n\n&amp;#x200B;\n\nObviously in a pandemic/economic free fall, all bets are off. Might be better asking a bankruptcy lawyer than real estate brokers of where you would slot in.", "replies": [], "depth": 7}], "depth": 6}], "depth": 5}], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}]