Bankruptcies Are Rising, Putting More Real Estate Up For Negotiation
Reemerging inflation and stubbornly high interest rates — paired with shifting consumer preferences — are driving a surge in corporate bankruptcy filings, resulting in widespread real estate portfolio cullings and restructurings.
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Total U.S. bankruptcy filings over the 12 months ending in March rose by 62,000 to 591,850, a nearly 12% increase year-over-year, according to the Administrative Office of the U.S. Courts.
One of the first things consumer-facing companies do in a Chapter 11 restructuring process is reevaluate their real estate portfolios to see which locations are performing, underperforming or have the potential to perform in the future, bankruptcy experts said.
Once they do, many landlords are faced with tenants asking to cut their rents or drop their leases altogether — which they are legally allowed to do with no consequence.
“The conversations themselves sometimes take the form of a game of chicken,” said Neill Kelly, managing principal and senior vice president of the restructuring and disposition team at SRS Real Estate Partners.
“It’s not how I personally conduct those conversations, but it’s very close to, in more cases than not, ‘Do this or take your store back,’” he added.
The retail sector and restaurant industry are taking the brunt of tariffs, elevated interest rates, inflation and consumers who are becoming more health- and money-conscious.
The consumer price index rose at an annual rate of 4.2% in May — the third consecutive monthly increase and the highest level since April 2023, according to Trading Economics.
More than 90% of Americans believe the U.S. is suffering from an affordability crisis, struggling with the rising cost of groceries and gas reaching a four-year high, according to a Harris Poll survey reported by The Guardian.
The average American can’t keep up. Nearly 50% of U.S. households didn’t earn enough to make ends meet in 2024, according to nonpartisan public policy organization Brookings Institution.
Consumers are readjusting their spending habits to keep up. While they are technically spending more money, they are buying less — and retailers are feeling the squeeze.
“If you’re in a business that caters to consumers who are feeling the brunt of some of the dynamics … your foot traffic is down, your sales are down, and you’re evaluating your platform,” Berger Singerman attorney Jordi Guso said.
For business owners, addressing real estate portfolios can take pressure off their balance sheets.
“It’s a huge difference because you’re driving earnings before interest, taxes, depreciation and amortization,” Guso said. “By closing the underperforming stores, you’re improving the enterprise’s earnings.”
While some retailers are trudging forward with new construction amid fluctuating tariff policies, many have struggled to stay afloat amid rising rent and design costs.
The quick-service restaurant industry is facing a financial slow bleed, a shrinking client base as the use of weight-loss drugs increases and more consumers become health-conscious, Guso said.
A handful of fast-food restaurants have struggled, filed for bankruptcy and are now either restructuring or selling their assets through an auction.
Popeyes franchisee Sailormen Inc., which filed for bankruptcy in January, found buyers for 97 of its restaurants across Florida, NRN reported. But it failed to attract buyers for 52 restaurants through the auction process. The court approved lease rejections for 18 of those locations.
Carrols Restaurant Group, a Burger King franchisee that filed Chapter 11 in 2025, rejected nine of its 57 leases during the bankruptcy process, according to a court filing.
“Most landlords don’t want to see their leases back,” Kelly said. “There’s always exceptions, obviously, but that’s a very powerful tool for a retailer to use to get their lease costs down.”
When retailers or restaurants file for bankruptcy, it doesn’t just affect storefronts. It can have a ripple effect into other real estate sectors, like industrial and office, Marcus & Millichap Senior Managing Director of Investments Darpan Patel said.
While real estate owners also have to deal with similar economic pressures, Patel said the odds are in the tenant’s favor when it comes to the process.
When a court approves that a tenant can reject a lease, an automatic stay goes into effect, immediately prohibiting a landlord from taking any action against the tenant or its property.
If a landlord experiences damages due to a lease rejection through bankruptcy, damage claims are limited based on the rent owed to 15% of the remaining lease term.
The larger the company, the more power it has. Saks Global closed two-thirds of its locations during its Chapter 11 process this year, emerging from bankruptcy in June with 49 locations and 75% less debt.
“It’s probably easier for it to want to analyze whether it should close one of the stores and what it will realize if it just consolidates into one location,” Guso said. “A smaller business obviously can’t do that.”
Smaller businesses, which witnessed a 93% increase in Chapter 11 filings, according to Newpoint Advisors Corp., are a bit more constrained.
The owners of two Negroni Bistro & Sushi Bar restaurants in Miami’s Doral and Brickell neighborhoods filed for bankruptcy this month. The local restaurant chain, founded by Pablo Sartori, operates the restaurants under 10-year 6K SF and 4K SF leases, the South Florida Business Journal reported.
The companies were strapped for cash and entered into multiple merchant cash advance arrangements, which added to their liabilities. The owners plan to continue operating through bankruptcy as they reorganize their debts. It’s not an uncommon issue as interest rates stay elevated.
“All of those those debt structures are creating issues,” Patel said.
The earlier a landlord is alerted to a tenant’s bankruptcy, the better, said Patel, who advised a handful of landlords through Red Lobster’s Chapter 11 bankruptcy in 2024.
If they’re in a good location, owners can phase out the struggling tenant paying lower rents and usher in concepts that are growing fast — like a Dutch Bros Coffee or a 7Brew.
“I’m seeing more of a reshuffling,” Patel said. “The better tenants that can come in and select better locations are winning, and same with the landlords.”
“If you have an above-market rent and a smaller area that’s not as dynamic, or incomes are not as high, that can create challenges to where your rent is going to go,” he added.
