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Shopping Center Industry’s Exposure to Bankruptcy Filing by Borders Raises Concerns

After the retail sector went through an entire year with few major bankruptcies or liquidations, the announcement of Borders’ Chapter 11 filing last Wednesday served as an unwelcome reminder that the industry is not out of the woods yet.

While the planned closing of 200 underperforming stores by Ann Arbor, Mich.-based Borders will certainly put additional pressure on retail landlords, the impact should be far less devastating than the Circuit City bankruptcy in 2009 and the Linens ’n Things filing in 2008, according to two research firms that track the securitized lending market for commercial real estate.

“The good news is it’s 2011, not 2008,” says Manus Clancy, senior managing director with Trepp LLC, a New York City-based provider of CMBS and commercial mortgage information. “The last three years have been tough on mall owners, and the loss is not a good thing. But by the same token, you are not losing a Sears.”

The CMBS market’s total exposure to Borders stores, both those slated for closing and those that will continue to operate, comes to 3 million sq. ft. of space — about 25% of the impact that Circuit City had on the CMBS universe, according to Steve Jellinek, vice president with Realpoint LLC, a Horsham, Pa.-credit rating agency and research firm.

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