Mall Staple Forever 21 May Be Considering Bankruptcy Filing, Report Says

Two Large Landlords, Simon, Brookfield, Could Be Affected If Los Angeles Retails Closes Stores

AUGUST 29, 2019|JENNIFER WATERS (via CoStar Group)

Forever 21 is reportedly close to filing for Chapter 11 bankruptcy protection after moves, including the sale of its Los Angeles headquarters, stalled. (CoStar)
Forever 21 is reportedly close to filing for Chapter 11 bankruptcy protection after moves, including the sale of its Los Angeles headquarters, stalled. (CoStar)

Forever 21 is reportedly headed for bankruptcy protection in a move that could create more vacancy headaches for mall owners Simon Property Group and Brookfield Property Partners, the teen apparel chain’s largest landlords.

The Los Angeles-based retailer that all but invented fast fashion is said to be taking steps to obtain debtor-in-possession financing to fund a potential Chapter 11 bankruptcy protection petition, according to Bloomberg. That comes after efforts to restructure its debt with help from both landlords and lenders stalled. Forever 21 did not respond to a request to comment.

However, a last-minute deal is still a possibility, the report said. A Chapter 11 bankruptcy filing for Forever 21, whose 815 stores are a staple at many shopping centers and malls, follows the steps retailers of all stripes and colors have taken as they struggle to adjust to a shopping landscape that is changing as quickly as the seasons.

Merchants ranging from Sears and Charlotte Russe to Barneys have found themselves looking for ways to downsize their footprints and remake their business models while brands such as Lord & Taylor have been sold to other retailers. And still others, Toys R Us and Payless ShoeSource, for example, were closing their stores.

Forever 21, based in Los Angeles, also has reduced its stores ranging in the 125,000-square-foot range to an average size of 21,000 square feet by giving up space to other retailers. In one instance, the once go-to for cheap but cool women’s clothes had moved into a two-level store that was once a Dillard’s at the Mall St. Matthews in Louisville, Kentucky, but gave up all but 30,000 square feet to Dave & Buster’s and Ulta Beauty, according to Forbes.

It’s also trying to shore up funds by selling properties. Last December, it got $166 million when it sold its 2.1 million-square-foot headquarters at 3880 N. Mission Roadin Los Angeles to Blackstone Group.

A faction of Forever 21 executives reportedly held talks with both Simon and Brookfield, which bailed out teen retailer Aeropostale in 2016, to purchase a stake in the privately owned company.

The owners, husband-and-wife team Do Won Chang and Jin Sook Chang, however, said that was “categorically incorrect,” according to reports.

But on a conference call with analysts in July, Simon Chief Executive David Simon hinted that he was in talks with ailing retailers. “We certainly have the ability to help beyond what you might do on the leases [and] become an investor in a distressed situation,” he said on the REIT’s quarterly conference call. “We have the ability … to look at becoming more than just a real estate player, but a buyer of these brands.”

If Forever 21 ends in bankruptcy and is able to walk away from a number of mall stores, Simon could find itself in yet another vacancy pickle. The Indianapolis-based shopping center giant leases some 1.5 million square feet to Forever 21 in 99 stores, according to regulatory filings.