Illustration: Aïda Amer/Axios

Staples recently informed landlords that it will not pay April rents for its U.S. stores, even though the locations remain open, Axios has learned.

Why it matters: Commercial landlords are stuck in a tightening vise, forgiving or deferring payments from shuttered tenants while still needing to meet their own mortgage obligations.

  • Staples, whose private equity owner Sycamore Partners took out a $1 billion dividend last year, is only making a bad situation worse.

What they're saying: Multiple landlords tell Axios that Staples reached out within the past 72 hours to inform them of its decision. It didn't propose any sort of deferred payments, nor would it pledge to pay May rents. At the same time, the landlords remain expected to maintain such services as utilities and sanitation.

  • "They basically told me it was my problem," one landlord explained. "They're taking advantage of a crisis — we're not allowed to do evictions right now and, even if we could, imagine the PR nightmare of kicking out an 'essential service.'"
  • "I could stop sweeping the parking lot, but I've got a supermarket in the same plaza," adds another landlord. "I also have an Office Depot in a different property, which is Staples' closest competitor, and they paid their April rent. ... Staples as an anchor tenant pays less per square foot than the smaller stores, which we're working with because their revenue went to zero, but apparently they don't care at all about those mom-and-pops or the smaller [landlords] that have only one or two anchors."

Standard commercial property leases do not allow for tenants to stop paying their rent due to the current situation, nor are the tenants typically covered via interruption-of-business insurance. Likewise, commercial landlords remain on the hook for their own debt obligations.

  • But, again, Staples remains open (albeit with slightly shortened hours).

The backdrop: Private equity firm Sycamore Partners took Staples private in 2017 for $6.9 billion. It also split the company into three independent operating entities — U.S. retail, Canada, and corporate supply.

  • Sycamore last year refinanced its buyout via $3.2 billion in new debt, out of which it paid itself a $1 billion dividend. Or, put another way, Staples took on $1 billion in additional debt, thus reducing its financial flexibility in a crisis.
  • It's unclear if the loans were taken out by the umbrella "Staples Inc." or by the corporate supply unit (which is stronger than Staples U.S. retail). Either way, the $1 billion dividend went to Sycamore, which owns all of Staples, and limited partners in its funds.

For the record: I spoke briefly on Monday with a Staples spokeswoman, who said she'd respond soon to Axios' inquiries. She never did, nor replied to follow-up emails and calls. Sycamore Partners declined comment, as it always does.

The bottom line: Most American businesses are struggling, and the pain is particularly acute in physical retail. No one ever made a model for this. At the same time, so many are pulling together to alleviate pain when possible. Staples and Sycamore are an exception, choosing instead to exacerbate it.

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