CVAs - turnaround or turnover?

On Tuesday 10 November, Simmons & Simmons and the Association of Property Lenders co-hosted a session on the rise of the CVA. Real estate partner Caroline Turner-Inskip chaired the debate and she was joined by:

• Ross Miller, head of restructuring and insolvency at Simmons & Simmons;
• Matt Smith, head of the London private market restructuring team at Deloitte;
• Morgan Garfield, managing director of retail and shopping centre specialist Ellandi; and
• Simon Hersom, ex-banker and consultant on investment strategy in real estate and financial markets.

Are CVAs a friend or foe?

The general consensus was that, while CVAs have devalued the role of a lease as a concept, without them we would see even emptier high streets. COVID has accelerated the problems retail and leisure tenants have faced recently. If CVAs were not an option more brands would be forced into administration.

Downward pressure on rents…

More stable tenants (who have seen landlords offering lower rents to tenants in the process of a CVA) are now inclined to request discounted rates as they ‘want what their neighbour has’. This demonstrates the ability of the CVA to create downward pressure on retail and leisure rents. This is clearly undesirable for landlords whose weaker negotiating position has been exposed by the CVA. It was suggested that most landlords would prefer the opportunity to work collaboratively with a struggling retail tenant to find a long-term solution, as opposed to diving straight into a CVA process.

The availability of debt…

The availability of debt in the retail and leisure sector was also considered by the panel and it was agreed that many lenders are now the owners of legacy assets. CVAs are no longer standalone and indirect events. Lenders will need to be able to work through their portfolio of legacy assets before being able to make debt freely available again in a sector that will look markedly different to how it looked a decade ago.

There are still opportunities for success

One of the main takeaways from the session was that, while retail and leisure property investments are shrouded in uncertainty and are no longer a ‘safe bet’ for investors, if an asset hosts a tenant that provides a retail or leisure service that has been carefully curated and appeals to the population then it should be successful.

> Watch on-demand here

Watch our Enforcement: are you ready? webinar on demand here where we discuss what happens when you have a real estate loan in distress and the options you have.