Topics: Bankruptcy lease auction, Bed Bath and Beyond

Transcript:

Chris Ressa 0:03
Welcome to retail retold everyone. I’m your host, Chris Ressa. And thank you for joining me today. So this episode is going to be a unique one, I gave a little indication, on past episodes that I would be attending the Bed Bath and Beyond bankruptcy lease auction. I had never attended one before.

And it was a huge learning experience. And I thought I would share a little bit about my experience and some insights. So here we go. So, you know, this was a much anticipated auction to start. So I would start there, because so many people in the commercial real estate space had a high regard for the quality of the bed bath real estate. So that’s number one.

Number two, there’s been a record low inventory on the market for available space in the size range. And there’s been unprecedented tenant demand for this. So there was an assumption that people were going to attend to buy the leases at auction so that they could access real estate that might otherwise not be accessible. I would argue that ended up turning out to be true, there was about 375 leases available. 153 of the leases received bids.

So that was you know, compared to like the Tuesday morning bankruptcy, which received, you know, which sold like 30 of the 200. It was like just north of 10% of the leases got sold. And I had mentioned I thought that was a really interesting one and potentially a really strong showing the Tuesday morning because there’s like 30 stores 30 leases sold, but it was in like 19 different states.

So it’s just sort of the magnitude of that the low vacancy and low and low availability of space is widespread throughout the United States as it relates to open air retail. So this was heavily anticipated. So myself, internal counsel, and bankruptcy counsel had met prior to this bankruptcy lease auction.

And so the first thing that you had to do is you had to submit a qualified bid. And there was procedures by which you had to follow to submit a qualified bid, you submitted the bid. And then after the bid was received, which is you had to submit the bid by Thursday, they let you know if you had a qualified bid by that Saturday. And keep in mind the following Monday was the auction.

So at that time, unless you did some like made a lot of calls coming into Monday, you didn’t know if there were other bids on your space, you had known that your bid was qualified and that If accepted, after that you made the offer, you would have to execute on that purchase, you would have to honor your bid. So to walk through the doors, you would have had to have made you know at the auction, you would have had to have already made a bid otherwise you couldn’t get in through the doors.

So you submit the bid and then you you also tell them and I didn’t realize that the bankruptcy cow branch council did this force, they tell them who from your party will be attending the auction. And so I show up on that Monday, and you could have shown up in person or virtually via zoom, they made that an option. And the first phase of that, or so I’m sorry. So backup.

So you show up, they they check you in. After you check in, you go in and there are there’s one main room and then there’s some breakout rooms for some people. I’ve been talking with the bankruptcy group prior about, you know, potentially making large package bids or if they were, you know, were a landlord who a creditor that had a large number of locations. And then you go into the big room, there’s no assigned seating.

You have tables, tables, have mics. Think of it like a big room. And in that room, there’s a bunch of tables and at the front of the room, a huge screen for video. And then the auctioneer a couple of people from the bankruptcy call so a couple People from the restructuring group AMG at that in the front. And, again, I never been here and trying to understand what this is going to be like. So now I had a lot of information, I knew a lot of the bed bath leases, I knew what the rents were, because that was public, because they were, you know, saying that these were open for sale.

So they start about on time, and we’re sitting there, and then they, they say that the they say that the auction, they’re going to start, there’s like four phases that they were doing, there was bids that were what they deemed to, and thought to be a landlord only. So at least that was bid on by only a landlord.

And then there was bids that were tenant only. And then there was bids that were competitive, where there was locations that had multiple bids. And then there was a package bid at the end that they saved for the end. So it would work like this, it would work like the highest qualified bid if there were multiple, but if there wasn’t, was there an anyone else in the room could bid on on this and they chose, like 25,000 increments to bid the lease.

So if the it was for round numbers $100,000, the next bid they were looking for was at least 125. Now, they didn’t have to accept your bid. And there were some they didn’t they thought they might get higher at a later date. So there’s a future auction. And, you know, stay tuned for later episodes to hear about that. But there were some massive takeaways for me. So, and let’s talk about it. And then I just sat there the day and saw how people bid and what and what happened, and who won what and how this whole process runs. So there’s massive take was one simple one.

But I think really important. It’s a actually, before I get into that, let’s back up. I’ve had a lot of questions lately. I’m going to answer this. So people have asked why would a landlord bid because if the retailer or tenant files a chapter seven, bankruptcy and liquidates. And that that business never sold that asset that lease is an asset than the space goes back to the landlord. So why would the landlord bid will landlord bid if they thought other retailers were going to bid on the lease.

Maybe for round numbers, let’s say the market rent is $20 a foot in this lease that Bed Bath and Beyond had control of was $10 a foot? Well, if someone bought that lease, they would be paying $10 A foot, maybe the landlord thinks there’s upside and has a number in mind, they could pay and still make it worth their while if they paid something because they could relate the space at a much higher rent. So that’s one reason.

Another reason is maybe they feel there’s, you know, they want to choose who leases their real estate and having control of their space. Or maybe they have a whole redevelopment planned and they can’t afford to someone to buy this lease. And this is the opportunity to get their redevelopment going. So there are multiple reasons. Okay, so those are the three reasons that someone a landlord by now let’s back up. So what are my takeaways? So one, there was a virtual option for this. And some people it worked fine. You could just tell by how some of the questions that the people on the phone, were asking that they it was hard to get the entire gist of what was happening in the room. By being states or towns. However far away, they were put virtually because they were only on audio they weren’t seen.

And so I thought there was a serious competitive advantage by being in the physically present. I also thought one of the things that happened is, you know, if you only made like a bid or two on two locations, you were hopefully given some time slots. I don’t know if that happened or not. But if you were in an out, I think you lose context of everything. Like if you’re learning about how people are bidding on assets that aren’t the one that you’re bidding on.

There’s a lot of takeaways and it’s hard to see that if you’re in and out. Meaning like you put pause on your zoom then you go handle a phone call while the auction is still going on but you’re not in person so you could multitask. I don’t think that’s the way you should play this but it works for some people. If you know, my lesson is for, unless you’re forced virtual, if you have the opportunity to be present, I think you should majority the people typically will be, especially if it’s one of this magnitude

to not all the bids were accepted. So, if the, they felt that they could get more, by taking it to a different, you know, to an auction at a later date or doing something else, the goal of the business that’s filing or filed, is to maximize the value of the state, they’re gonna do whatever it takes to do that, they think they have an asset that’s worth more than you do. Just because you bid that doesn’t mean you’re in tight, you’re going to win even if there are no other bidders.

So remember, the goal is for them to maximize the value of estate, it’s not to just, you know, clear their books of assets, there might be some assets that they feel, you know, and I’m not just talking leases, per se, even though that’s the focus of what this auction was. But I it really resonated me, they’re focused on maximizing the value of the assets, not necessarily like just clearing the books.

And then the third piece was, at least in a, a lease option. If you buy multiple leases, mean, you’re spending more money in theory than others, the leverage is in your favor. Hands down, the leverage is in your favor. And so I think this was one of my biggest takeaways that I didn’t realize it makes sense now that I’m talking about it out loud. But I just didn’t realize going in, like, if I was competing against someone who I was bidding on one who’s bidding on 20.

And one of theirs was mind, the likelihood that they’re going to let me win that if it meant that it blew up the 20 store package. You know, obviously whatever the dollar is, people bid matter in that. But it’s unlikely that my one locations bid would surpass the 20, that the another person bid. And so people bidding on multiple locations, and if they let the people in the auction, the auction who are running the auction process know beforehand. And you know, that maybe in that was, especially if that was the qualified bid multiple locations.

And you’re bidding on one or two and one of your two, or in that package that was bid on, you have an uphill battle. So those who bid on multiple locations at once as a package, have the leverage. So again, I gave you some reasons why landlords bid, I

thought that might be interesting. One was to maximize the rent to as they get to decide on who goes into their own property. And three was if there was a redevelopment and they needed control, just to you know, do something for redevelopment. Then the three big takeaways, one, I think being in person has an upper hand over being virtual, to the goal of the auction is to maximize the value state. And number three, he or she who has the package of deals has the leverage. So that’s all I got for today. I found that a fascinating and educational experience.

What are some other things? I saw some other things like there was, you know, someone who was selling a center and someone who was buying a center, both bidding on a location was really weird. And the court actually, they actually took the time to explain why some of these scenarios were happening.

But that was really interesting. So the property was like under contract, and both the buyer and the seller are bidding on the lease. Shoot me a note if you want details on why that happened. It’s it’s pretty long. You can find me on LinkedIn. And so there were there were multiple, it was interesting to see how people were running math around the problem on how much they could pay. And everybody’s math was different, which was fascinating.

It was interesting to see which properties had not only significant volume of bitters which was the case but also that went for such a high value and dollars. And to see those scenarios was really interesting case Yeah, like, right from an acquisition perspective, like, I sat there one time and there was like, someone sent was sitting next to me and there was, you know, this this wild and wild number of people bidding on this one location.

And then the value also got high summons like How will you get this? What do you think of this? I said, What do you think of this I need to find out how to buy the shopping center. This is crazy. I didn’t realize everyone wants to be in such and such town and such as a center that you got to own that dirt. So it was really, really interesting experience. So anyways, hope everyone had a great Fourth of July and is off to a great summer. Thanks for joining me. I hope you learned something about banks release auctions. Take care