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Illustration: Aïda Amer/Axios

There's a new milestone in retail sector turmoil: Mall landlords — already plagued by plummeting foot traffic, and pushed over the edge by tenants' inability to pay rent because of the coronavirus — are filing for bankruptcy.

Driving the news: CBL & Associates Properties, which owns about 100 shopping centers across the country, and Pennsylvania Real Estate Investment Trust (PREIT), which has over two dozen locations primarily in the Northeast, filed for bankruptcy on Sunday.

  • Both companies are entering bankruptcy with restructuring plans that have been approved by a fair chunk of their creditors, so the bankruptcy process might be speedier.

Why it matters: This is rare — there hasn't been a mall operator bankruptcy in over a decade. Now, two major mall owners are seeking relief for survival, as store pain trickles up to landlords.

What's going on: Rent payments that mall operators wholly depend on came to a halt when the pandemic hit. Economic lockdowns forced retailers to close their stores, depriving them of the revenue they needed to pay rent.

  • For example: The rent collection rate across CBL's mall properties fell to 27% in April, according to company documents filed on Monday.
  • CBL has still only collected 75% of that month's rent as of Oct. 1.

Flashback: The last retail property owner to file for bankruptcy was General Growth Properties in 2009, then the 2nd biggest mall operator in the country.

  • What happened: It wasn't a byproduct of tenant turmoil. Rather — thanks to a disruption in the real estate financing markets — it couldn't refinance billions of dollars in debt (mostly in the form of short-term mortgages).

The state of play: Mall owners have been struggling for years and paying the price for banking on mega-tenants like department stores that were losing appeal, shuttering and going out of business.

  • But even then "there were underlying lease agreements that kept cash coming in, which allowed them to do enough to stay afloat," Zachary Klein, an analyst at Fitch Ratings, tells Axios.
  • Malls were trying to attract other non-traditional stores to appeal to shoppers, with mixed success. One property owned by PREIT, for instance, has a co-working space and a bowling alley — neither of which is particularly COVID-friendly.
  • Another growing trend: mall owners converting their space to apartments.

Now more tenants are disappearing. Among the retailers seeking bankruptcy protection since the pandemic hit, many have a big presence in malls, like J.C. Penney, Chuck E. Cheese, and New York & Co. Landlords have been deferring rent while these retailers restructure.

  • Ascena Retail Group said it would close the stores of brands that make up over 50% of all stores in CBL properties — a common outcome in bankruptcy.
  • Other non-bankrupt companies, like Macy's, are also closing shops.

The bottom line: The problems that pushed the mall operators into financial ruin will still be staring them down once they emerge from bankruptcy.

  • "We know COVID is a temporary event, but the shift from physical to digital retail is not a temporary event," Michael Brown, a partner at consulting firm Kearney who's focused on retail, tells Axios.

Go deeper

Mike Allen, author of AM
3 hours ago - Politics & Policy

Biden adviser Cedric Richmond sees first-term progress on reparations

Illustration: "Axios on HBO"

White House senior adviser Cedric Richmond told "Axios on HBO" that it's "doable" for President Biden to make first-term progress on breaking down barriers for people of color, while Congress studies reparations for slavery.

Why it matters: Biden said on the campaign trail that he supports creation of a commission to study and develop proposals for reparations — direct payments for African-Americans.

Cyber CEO: Next war will hit regular Americans online

Any future real-world conflict between the United States and an adversary like China or Russia will have direct impacts on regular Americans because of the risk of cyber attack, Kevin Mandia, CEO of cybersecurity company FireEye, tells "Axios on HBO."

What they're saying: "The next conflict where the gloves come off in cyber, the American citizen will be dragged into it, whether they want to be or not. Period."

Cedric Richmond: We won't wait on GOP for "insufficient" stimulus

Top Biden adviser Cedric Richmond told "Axios on HBO" the White House believes it has bipartisan support for a stimulus bill outside the Beltway.

  • "If our choice is to wait and go bipartisan with an insufficient package, we are not going to do that."

The big picture: The bill will likely undergo an overhaul in the Senate after House Democrats narrowly passed a stimulus bill this weekend, reports Axios' Kadia Goba.