Recently, dollar stores across the country have been struggling, and many large chains are closing all or most of their stores. What does this say about the commercial real estate market, and does it create any risks or opportunities for commercial lenders?
Dollar Store Closures
Several price-point retail chains (also known as five and dime stores, dollar stores, or variety stores) are closing retail spaces in 2024 due to financial distress.
99 Cents Only will be shutting their doors in 2024. The company announced that it would be closing all 371 of their stores, which span California, Arizona, Nevada, and Texas.
Dollar Tree announced that it would be closing 600 stores in 2024, plus 370 stores under the “Family Dollar” brand. The company also said it would close additional stores over the next few years.
The closures are expected to hit low-income communities the hardest, since these types of stores are helpful in providing budget-friendly food and personal care products.
Why Are Dollar Stores Closing?
Price-point retailers are facing the following financial challenges:
- Inflation: Companies are having difficulty providing low-priced products with ongoing inflation, which is compounded by rising commercial rent, wages, and employment fees.
- COVID-19: The COVID-19 pandemic has created economic difficulties for retail stores in every industry, as consumers have shifted to online shopping or gave higher preference to larger retail chains.
- Rising Shrink: Supply-chain difficulties following COVID-19 has caused inventory shrinkage at many price-point retailers.
- Shoplifting: Dollar Tree stated that frequent shoplifting had affected their revenue.
While price-point retailers are facing unique challenges, many of these challenges are shared by other retail stores across the country.
How Will Lenders Be Impacted?
Investment groups and individual lenders should be on the lookout for hundreds of retail spaces opening up in 2024. For lenders who feel confident investing in retail businesses, there may be opportunities to scoop up properties that once had price-point retailers.
There may also be substantial risk for lenders who are invested in retail complexes, such as strip malls, because the loss of price-point retailers could make it more difficult for these properties to generate sufficient revenue to pay their commercial mortgage loans.
“Shopping malls and strip malls can be severely impacted by the loss of just a single retailer. Retail chains usually pay higher rent, so a closure could impact the profitability of the entire shopping complex—even if the property has low-vacancy.”
-Randy Newman, Founder and CEO of Total Lender Solutions
If you’re invested in any properties that have price-point retail stores as tenants—whether or not they’ve been slated for closure—you may want to start looking into contingency plans if you suspect the borrower could default.
Facing a Defaulted Loan? We Can Help
If you’re dealing with a default or foreclosure on a commercial property, it’s best to seek assistance from a foreclosure firm as soon as you can. Foreclosure firms can guide you through the commercial foreclosure process, or help you reach an alternative solution to foreclosure that protects your investment.
Total Lender Solutions handles commercial foreclosures in the states of Washington, Oregon, California, Arizona, Nevada, Texas, and Missouri. We have an expert team of real estate professionals that can help you secure a strong outcome that saves you time and money, and protects your assets. Contact us to learn more about how we can help.
