The Filing You Should Have Seen Coming: A CRE Owner's Guide to Tenant Bankruptcies

Personal and business bankruptcies are back in the numbers in a way owners can't ignore. For the twelve months ending March 31, U.S. filings reached 591,850, an increase of nearly 12% (and roughly 62,000 more cases than the prior year), per the Administrative Office of the U.S. Courts. Business filings alone are up about 11%.

The American Bankruptcy Institute has pointed to prolonged pressure on household and business balance sheets, and the quarterly trend hasn't broken stride in three years.

A Workforce That's Never Been Tested

There's a quieter reason this cycle deserves attention, and it has nothing to do with the filing count.

Over the past thirty years, the economy spent far more time expanding than contracting, and the downturns that came were either shallow or short.

• The 2001 recession was mild and brief.

 

• The Great Recession of 2007 to 2009 was severe, but it's nearly two decades behind us now. That was the last time the industry lived through a broad wave of tenant failures.

 

• What followed was the longest expansion on record, 128 months of cheap capital running to early 2020.

 

• Even the retail shakeout of the mid-2010s (Toys "R" Us, Sears, Payless, and RadioShack) got absorbed by a growing economy and strong backfill demand.

 

• Then the pandemic delivered the sharpest contraction on record and also the shortest, just two months, cushioned by PPP loans, direct stimulus, and eviction and rent moratoria that muffled the normal mechanics of tenant distress. Filings fell to a multi-decade low of around 380,000 in mid-2022 and are now climbing in earnest.

The result - many of the asset and property managers working today have built their entire careers inside that calm. Plenty have ten or fifteen years in the business and have never once taken a tenant through bankruptcy.

They've never drawn on a letter of credit, never fought a lease rejection, never modeled a co-tenancy cascade for real. That's no knock on anyone - you can't rehearse a storm that never comes. But the rising filings are landing on a workforce that hasn't been tested by them, and the learning curve is steep when a rent roll is what's at stake.

 First, Know Which Chapter You're Dealing With

Not every bankruptcy means the same thing for a landlord, and the chapter under the bankruptcy code a tenant files under tells you most of what you need to know about how the case will go.

• Chapter 7 is liquidation. The business ceases operations, a trustee steps in, and any remaining assets are sold to pay creditors. For a commercial tenant, this is the hard stop. The store closes, the lease is typically rejected or assigned away, and you get the space back. You stand in back of a long line of other unsecured creditors – which is behind a long line of secured creditors. Chapter 7 landlords recover very little – and often nothing.

 

• Chapter 13 is a court-supervised repayment plan, and it's generally reserved for individuals rather than companies. The filer commits to a three- to five-year plan, and any unsecured debt remaining at the end is discharged. It becomes your concern when the tenant is a sole proprietor, a personal guarantor on the lease, or an individual whose obligations sit behind the space.

 

• Chapter 11 is reorganization, and it's the one you are most likely to experience. The company keeps operating while it restructures its debts. Critically, it can assume, reject, or assume-and-assign its leases. That authority is the source of nearly all the leverage a distressed tenant holds over you. It gets to decide which locations to keep, which to renegotiate down, and which to walk away from. Most of what follows assumes a Chapter 11 case, because that's the case where your decisions as a landlord actually affect the outcome.

That distinction also explains why the request to cut rent or hand back space arrives so quickly. Grading the real estate is one of the first things a reorganizing company does. When a consumer-facing operator files to restructure, its advisors put the portfolio under a microscope and rank every location by performance. Then the requests go out: cut the rent or let us out of the lease. In most cycles, that puts owners on the back foot.

This Round Will Not Hit Every Owner the Same Way

Depending on the local market and the property type, this wave of bankruptcies could be a windfall or a wrecking ball, and the two outcomes sit closer together than most owners assume. Before you decide whether to take back a tenant's space or fight to keep them in it, be honest about the fundamentals of the specific asset.

• Strip and neighborhood retail is the tight corner of the market. Availability for neighborhood, community, and strip centers has been sitting near record lows, occupancy is at or near all-time highs, and almost nothing new is being built. Suburban centers are outrunning downtown ones, and grocery-anchored space is especially prized.

Here, the old reflex holds. If a struggling tenant hands back a below-market box, you can usually re-tenant it quickly at a higher rent, and getting the space back may be the best thing that happens to the center all year.

• Malls are a different story, and the tier is everything. Overall mall vacancy is running near 8.8%, roughly double the broader retail average, but that number hides a chasm.
  • Class A malls, the $500-plus-per-square-foot centers, are around 95% occupied and close to pre-2019 traffic, while Class B malls sit at around 89% and Class C malls have slipped to roughly 72% occupancy, some pushing 20% vacancy or worse.

​A returned space is manageable for Class A mall owners. But for Class B or C mall owners, losing an anchor or a junior box can be a genuine crisis: it trips co-tenancy clauses, bleeds foot traffic, and often there is simply no retail tenant waiting to backfill.

A realistic path in that case might be repositioning (into medical, entertainment, etc.) or
replacement (residential, self-storage, etc.) - not a quick re-lease.

• Office is the inverse of strip retail, and it is intensely regional.
  • National office vacancy is stuck near 17 to 18%, the highest in decades, and the gap between quality tiers is stark.
  • ​​Trophy and Class A space in strong submarkets is tight and commanding real premiums. In contrast, commodity Class B and C towers have become, in the industry's blunt phrase, zombie buildings, structurally impaired and hard to fill at any price.

Geography compounds it: central business districts carry far more distress than suburbs, and metros like San Francisco, major Texas markets, and even Washington, DC are still running north of 20%.

If an office tenant files in a soft submarket, getting the space back is not a windfall. It is a hole you may struggle to fill for years, which is why protecting the existing tenancy usually beats recapturing the space.

• Industrial has come back to earth, and here size and region decide your exposure.
  • After a historic run, national vacancy has drifted up to roughly 7% as a wave of pandemic-era big-box construction has been delivered into softer demand.

The market is split down the middle by size. Small-bay space under 50,000 square feet stays tight, often below 5%, while big-box space over 500,000 square feet runs closer to 9 or 10%, with the softest conditions in the overbuilt Sun Belt metros: Atlanta, Phoenix, Dallas. Port-proximate and supply-constrained markets such as Nashville and Raleigh remain firmly landlord-friendly.

A small-bay unit coming back in a tight market is easy to replace. A half-million-foot distribution building in an oversupplied submarket is not.

*The lesson is to run three questions before reacting to a distressed tenant:*

1. What property type is it?
2. What class and condition?
3. What is the real demand in that specific submarket?

The right move in a grocery-anchored strip center is often the exact opposite of the right move in a Class B mall or a commodity office tower.

The Secret Sauce

I've sat on the owner's side of that table more than once across a large portfolio, and the pattern holds up. The owners who come through a tenant bankruptcy in good shape aren't lucky. They saw it coming, they knew their rights (through the leases), and they treated a returned space as an opportunity rather than a wound. Everything below is built around those three habits.

The Signs Come Early

The filing is the last signal, not the first.

In three decades, I've never watched a tenant go from healthy to bankrupt overnight. The trouble builds for months, and it shows up in plain view if you're actually looking for it. The operators who catch it early are almost always the ones walking their properties rather than reading a receivables report from three states away. (And your engineering team is usually the first line of defense to notice when things start changing. Teach them the signs so they can be your eyes and ears.)

• Payment behavior is the first place it surfaces, and the pattern matters more than any single balance. A tenant that always paid on the first drifts to the tenth, then the twentieth. Base rent still clears, while every CAM or tax reconciliation suddenly draws a dispute. You start fielding requests to move the due date, to go back to paper checks, to true up next month. Any one of these is ordinary. Stacked together, they tell you cash has tightened, and rent has slid down the priority list.

 

• For retail tenants, pay attention to the store itself. Hours quietly contract. Shelves are bare. The seasonal  reset that happened like clockwork doesn't happen. Little things break and stay broken - the sign that's been half-dark for weeks, the sticky front door nobody bothers to fix. Headcount drops; deliveries thin out. A retailer that has stopped spending on a location has usually stopped believing in it, and the space says so before the corporate office ever will.

 

• The corporate signals are the loudest once you know to listen for them. Your day-to-day contact leaves and isn't replaced. You catch news of closures in the company's other markets. Out of nowhere, the tenant wants to talk about early termination, co-tenancy, or "flexibility." Ratings slip, and vendor liens appear. And when you hear the company has brought in a name like Hilco, A&G Real Estate Partners, Gordon Brothers, or B. Riley, understand that the location grading is already underway. That is not a firm you retain to keep stores open.

Once any of this reaches the trade press, the moment to strengthen your position has mostly passed. The quiet stretch before the petition is when you hold leverage. Use it.

 Know Your Documents Before You Need Them

How well you come through a filing is decided largely before it happens - by how thoroughly you understand what
you're holding.

• Start with the lease file for any tenant showing strain.
  • The guaranty is the first thing I want to see: corporate, personal, or a limited good-guy guaranty that only carries through surrender of the premises.
  • Then the credit enhancement. Is there a letter of credit, is it current and evergreen, and is it drawn on a bank that's actually sound rather than a shaky regional?
  • Recapture rights, go-dark triggers, continuous-operation clauses, cross-default language reaching other stores in a chain, all of it shapes your position, and all of it is far harder to sort out after the tenant's counsel is involved.

There's a window of leverage most owners let slip. A struggling tenant almost always comes to you for something before it files for bankruptcy - a renewal, an amendment, a short deferral. That ask is your chance to require a larger deposit, a fresh letter of credit, or an added guaranty. It's also worth getting estoppels and reconciliations current across the center while you're at it, because clean documentation carries real weight on the day you decide to sell or refinance with a tenant in play.

The Bankruptcy Code

The Bankruptcy Code itself rewards owners who understand it and punishes those who don't. Once a tenant files, the automatic stay stops collection cold. Engage an experienced attorney early – before the tenant files – so you understand your rights and how to protect your interests.
​

• In a Chapter 11, the tenant then has a defined runway, 120 days with a possible 90-day extension, and anything past 210 days needs your consent to assume, reject, or assume and assign each lease. Holland Knight lays the timeline and claim mechanics out well.
• Through that period, the tenant owes post-petition rent, and you should be tracking that stub-rent obligation to the dollar, since it's one of the few amounts you can actually enforce in real time. If the lease is eventually rejected, your claim for lost future rent is capped, generally at the greater of one year's rent or fifteen percent of the remaining term up to three years, and it falls into the general unsecured pool where recoveries are often pennies on the dollar.
• That cap is the whole argument for collecting real credit enhancement up front. A modest letter of credit in hand today beats a large paper claim tomorrow every time. File your administrative claims on time, don't overlook a Section 503(b)(9) claim for goods delivered in the final twenty days, retain bankruptcy counsel early, and take a committee seat if the exposure justifies it.
• One more area gets underplayed. If the tenant tries to sell your lease to a third party, you're owed adequate assurance of the assignee's future performance. (For retail, pay attention to the use, percentage rent, radius restrictions, and tenant mix clauses in the document. A weak or off-strategy assignee can do lasting damage to a center, so this is not the place to rubber-stamp.)
• Don't lose sight of the physical asset while the case grinds on – especially in retail and industrial when the tenant is responsible for certain maintenance tasks. An empty tenant space still needs maintenance and upkeep. Abandonment can create liability nobody budgeted for.
• Model the fallout before it lands on you, too. A dark retail anchor costs more than its own rent. It can push the common-area burden onto your remaining tenants and, worse, trigger co-tenancy clauses that allow others to cut rent or leave. Run your NOI, recovery pools, and debt service coverage through a few scenarios, then call your lender before the news reaches them another way. In my experience, lenders
  forgive bad news far faster than they forgive a surprise.​ ​

 The Part Most Owners Get Backward

Here is where instinct works against you.

• A tenant handing back space feels like a loss, and sometimes it is. But look at the market it's landing in. When new supply is nonexistent, and quality space is scarce, the owner holds the cards. A below-market box coming back isn't automatically a problem. Frequently, it's an upgrade that finally has a trigger.

 

• Brokers have a name for the opportunity: the backfill arbitrage. An old tenant on a stale, below-market lease vacates, and you re-lease the same four walls at today's rates. In an ordinary market, the lift might be five to ten percent. Right now, Schuckman Realty reports mark-to-market gains of fifteen to twenty-five percent on a ten-year term in the stronger submarkets. Once you internalize that, the reflex to keep a wounded tenant at any cost starts to look expensive. Sometimes the right move is to negotiate a termination payment, take the space back clean, and re-tenant at market.

 

• Start with the category, not the lease. Decide what use the vacant space wants – whether off-price, grocery, medical, fitness, office, or quick-serve, and build the deal around that thesis rather than around whatever happened to be there before. A vacancy is also one of the only moments you can recapture the restrictive exclusives and co-tenancy language that have been quietly limiting your leasing for years, so clean up the lease while you have the chance.

Not every distressed tenant should be shown the door. A wounded but viable operator is often worth saving, and a blend-and-extend or a turnover-rent structure spreads the risk, keeps the space occupied, and hands you upside as the business recovers. Temporary reductions paired with clawback provisions do something similar.

The one rule I'd underline, and Newmanor Law makes the same point, is to paper it properly. A friendly agreement to cut rent for six months is worth nothing if the tenant files anyway. Get it into a signed amendment, or it didn't happen.
​
Size is worth rethinking when a large space comes back. In retail, big-format and junior-box space often leases for more subdivided than whole, since a lot of today's quick-serve and fast-casual concepts want 600 to 1,000 square feet where an old freestanding restaurant took 3,000 to 4,000. Demising a single 30,000-square-foot space or full-floor office space into three suites can lift blended rent per foot while spreading credit risk across several tenants instead of resting it on one.

When backfilling is not an option, adaptive reuse protects value that a straight re-lease can't. Fitness operators are converting second- and third-generation retail into gyms because the build-out is cheaper and the traffic is already there. Medical, entertainment, self-storage, last-mile logistics, and mixed-use residential all warrant consideration depending on the trade area. The outcome to avoid is a dark box producing nothing while you hold out for a retail tenant who isn't coming. A pop-up, a seasonal user, or a short-term experiential tenant can keep the space active and the traffic flowing - and can hold your co-tenancy dominoes upright while you line up something permanent.

There's leverage to be had inside the case itself, if you approach it right.

During the designation-rights and lease-auction process, the debtor is deciding which locations survive the reorganization. Show up as a problem-solver, offer a deferral now in exchange for a longer term or added credit enhancement later, and you often become one of the stores that make the cut. The leverage in a Chapter 11 runs both ways, and it runs further when the advisors on the other side see you as a partner rather than an obstacle. Retailers already work this angle from their side; in recent acquisitions, operators renegotiated the bulk of their leases with landlords who preferred a working deal to a wall of vacancies.

It Isn't Only a Retail Story

Consumer-facing tenants reevaluate their footprints in public, which is why they dominate the coverage, but the same discipline carries across the portfolio.

• An office tenant sliding toward trouble leaves its own trail: sublease listings, reimbursements that slow, badge activity that falls off, quiet questions about buying out the term.
• Industrial and healthcare tenants have their own tells.

The sequence never really changes. Watch the operating signals, know your lease and your credit enhancement before anything is filed, and judge a returned space against the market in front of you rather than by reflex.

Where That Leaves Owners

The tenants filing for bankruptcy today are better advised and more strategic about using their leases as leverage than they were a cycle ago, and the rising numbers say more of them are coming.

None of that has to work against you.

Distress inside a supply-starved market is one of the few moments an owner gets to reprice and reset a rent roll that was untouchable while everyone was current. Whether it plays out as a write-off or an upgrade comes down to the unglamorous work done before the petition ever hits the docket: knowing your tenants, knowing your documents, and knowing what your space is really worth in today's market.

The Reality Check

Is your L&D program stuck in the past?

Is your training program a competitive advantage, or a time capsule from 2005? 

The Commercial Real Estate (CRE) landscape has shifted, but many L&D programs are still running on "the way we’ve always done it." If your training consists of dusty manuals and generic videos that your team mutes just to get through, you’re not just wasting time - you’re losing talent.

Modern CRE professionals don’t want "check-the-box" training. They want:

• Context: How does this apply to our specific assets?

 

• Accessibility: Learning that fits into a high-speed schedule.

 

• Relevance: Real-world skills, not just theoretical concepts.

It’s time to move from "legacy" to "leading edge."
​
At INSPIRE, we specialize in bringing L&D into the future. We don’t just provide information; we provide the framework for growth. Is your program ready for an upgrade?

The "Empty Library" Problem

LMS Architecture vs. Content Gap

You’ve invested in a state-of-the-art Learning Management System (LMS). The interface is sleek, the logins work... but the "shelves" are empty. 

One of the biggest hurdles we see in CRE is the Content Gap. Companies have the platform, but they lack:

• CRE-specific expertise that actually speaks the industry language.

 ​

• Company-specific content that reflects their unique culture and SOPs.

An LMS without high-impact content is just a digital filing cabinet.

INSPIRE bridges that gap. We are the only company in the US that combines deep CRE industry knowledge with L&D expertise under one roof. We don’t just set up your LMS architecture; we populate it with custom, high-impact courses that actually move the needle.

Stop paying for a platform your team doesn't use. Let’s fill it with something worth watching.

The Human Element

Your people are your greatest asset don't do them a disservice.

We say it all the time: "Our people are our greatest asset." But do your training investments reflect that? 

If your training program is non-existent or worse, boring and irrelevant you’re doing your team a disservice. In today's market, professional development is a top driver for employee retention. If they aren’t growing with you, they’ll look to grow somewhere else.

At INSPIRE, we believe training should be #NeverBoring.

We develop training that is:​
​

• Interactive: Engaging the brain, not just the mouse finger.

 

• Relevant: Tailored to the real-world skills your team needs today.

 

• Impactful: Designed to enhance capabilities and boost your bottom line.

Your team deserves more than a "compliance" culture. They deserve a "growth" culture. Let’s build it together.

The End-to-End Solution

INSPIRE's Three Pillars

Why juggle three different vendors when you can have one powerhouse partner? 

INSPIRE is the only firm in the US that brings together CRE expertise and L&D mastery to provide a true end-to-end solution.

We focus on the three core pillars of a successful training function:

1. HR Strategy: From job task analysis to defining clear career pathways, we ensure your training aligns with your organizational behavior goals.
2. LMS Architecture: We handle the setup and ongoing administration, providing a seamless, centralized platform for your team.
3. Content & Delivery: We create custom and semi-custom courses - delivered in-person, synchronously, or asynchronously - that are interactive, fun, and highly relevant.

We don’t just teach; we transform. Whether you need a full L&D overhaul or a single custom course, INSPIRE delivers the real-world skills your team needs to lead the market.
​
Ready to revolutionize your training? Let’s talk.

Greetings!

When the "Happiest Place on Earth" can't keep a building cool, every property manager should be taking notes.

Last week, the air conditioning at Disney's Wilderness Lodge - a Deluxe resort where rooms run $600+ a night went down. Not for an hour. For days. It started the afternoon of June 18 and was still limping along nearly a week later, right in the middle of a Central Florida heat advisory with "feels like" temps pushing 105–111°F.

The result: guest room temperatures in the 90s, a lobby described as a "sauna," two signature restaurants forced to cancel hundreds of reservations, and portable spot coolers and evaporative units wheeled into the gift shop and food court to take the edge off.

Disney scrambled to relocate guests to other resorts, comp free nights, and offer no-penalty refunds. As of the latest reports, there was still no public timeline for a full repair - and no official statement.

Here's what intrigues me as a CRE "ops guy:" If Disney - a company that scripts the placement of every trash can and rehearses parade timing to the second - can get caught flat-footed by a single point of failure in a chiller plant, your building can too.

This is a textbook business-continuity failure dressed up as a maintenance problem.

A resort-wide cooling system is mission-critical infrastructure. When it goes down during a heat advisory, you're no longer talking about guest comfort - you're talking about life-safety, liability, and brand damage that outlives the repair.

The mitigation effort (portable units, fans, relocations) was solid. The absence of a fast, visible, pre-planned response was the real miss.

​You don't want to be sourcing rental chillers and writing your tenant comms in the middle of a disaster.

Lessons for CRE

Lessons every asset, property, and facilities manager should take from this:

Know your single points of failure - and engineer them out. A central plant that can take an entire asset offline is a concentration risk. Redundancy (N+1), sectional zoning, and isolation valves cost money up front and save your reputation later.

Have a written disaster-recovery and business-continuity plan - and rehearse it. Not a binder nobody's opened. A living playbook: who you call, what gets shut down, how tenants/guests are notified, and who has authority to spend.
​
Pre-negotiate emergency vendor contracts. The time to find rental chillers, cooling towers, and HVAC crews is BEFORE peak season - not while your lobby hits 90°. Lock in priority-response agreements with SLAs now.

Stockpile or pre-stage mitigation equipment. Portable spot coolers, fans, generators. Disney got these on-site fast; most operators can't. Know where you'd source them in 24 hours.

Communicate early, often, and honestly. "No comment" and no timeline is the worst look. Silence reads as indifference. A holding statement plus proactive guest/tenant outreach protects the relationship even when the fix is slow.

Build the compensation/goodwill framework in advance. Refunds, comps, relocations, rent abatement - decide the thresholds before the crisis so your front-line team can act without waiting for approvals.

Treat proactive maintenance as risk management, not a cost line. Your CapEx plan and your risk register should be the same conversation.

Map the cascade. One system failed and it took down rooms, F&B, retail, and revenue. Know how a failure in one building system ripples into operations, NOI, and brand - and plan for the whole chain, not just the box that broke.

Even at Disney, Operations are Not Magic

The magic isn't that nothing ever breaks.

The magic is having a plan ready for when it does.

If your portfolio lost a critical building system tomorrow during a heat wave, would your team execute a plan - or improvise one?

If it's the latter, that's this week's project.