Mattress Firm Asking Rent Concessions Unacceptable to many Landlords As Bankruptcy Battle Begins
Houston-based Mattress Firm is asking for significant rent concessions from many of its remaining landlords, a commercial real estate news company is reporting. New York-based Bisnow said it has obtained a recording of a conference call earlier this month in which Mattress Firm CEO Steve Stagner asks for the concessions.
Stagner told an audience of Mattress Firm’s retail landlords that the company would “ask them for lower rental rates without any negotiation, or face possible closures,” Bisnow reported.
“I want to be clear that we are only asking for what we need and have no wiggle room for negotiations,” Stagner said on the call, according to Bisnow. “Unfortunately, without concessions, we will have to close more stores.”
“In several interviews with Mattress Firm store owners, some landlords have told Bisnow they will decline the option to lower the rent, confident they can get a better deal. Others expressed frustration over losing a tenant in the volatile retail environment. A few have already filed protests in court, asking a judge to compel Mattress Firm to pay its rent,” Bisnow reported.
In the weeks since the Chapter 11 filing, the closure list has swelled to more than 500 stores, according to the firm Mattress Firm hired to advise on its bankruptcy real estate strategy. Mattress Firm operates more than 3,000 stores, a portfolio that has grown exponentially in recent years as part of an aggressive expansion strategy and several mergers. The retailer’s bankruptcy is not an isolated incident. Its parent company, Steinhoff International, is reeling from an accounting scandal that has led to its chief executive’s ouster and government hearings where it is headquartered in South Africa, BisNow is reporting.
Its largest supplier, Tempur Sealy, pulled its products out of Mattress Firm’s thousands of stores last year. Earlier this week, Tempur Sealy announced a plan to expand its own retail footprint with 60-80 stores by the end of 2019, that includes reaching out to landlords of closed Mattress Firms.
“Our liquidity and ability to obtain new financing have been hampered by the issues affecting our parent company as well as existing restrictive financial conditions, including the $3.2B inner company debt on our balance sheet,” Stagner said on the conference call. “We must overcome significant operational and financial challenges to succeed.”
Neither Mattress Firm nor its attorneys have responded to multiple requests for comment.
After years of buying up competitors like Sleepy’s, Sleep Train and Mattress Giant — and rebranding each of its new stores as a Mattress Firm — the stores, while small compared to the footprints of supermarkets and movie theaters, felt ubiquitous in many parts of the country.
In some cities, Mattress Firm had as many as four locations around a single intersection or within a mile of each other. In some locations, Mattress Firm was paying top-of-the-market rental rates, an issue that was central to the retailer’s lawsuit against two former in-house real estate executives and its retail broker. In the suit, Mattress Firm claimed the trio steered Mattress Firm to high-priced locations in exchange for kickbacks and bribes from developers and landlords.
In metro Tucson, a list of store closures shows the store at 9484 E. 22nd St. and another at 3858 W. Orange Grove Road, in addition to an earlier announced closure at 5545 E. Broadway, leaving ten remaining stores in here.
The retailer identified several stores in its lawsuit where it claims it is paying artificially inflated rents in Ohio, Utah, North Carolina and other states involving new Mattress Firm stores with rents approaching $40/SF, where the landlords made millions in profit within months by flipping the properties after the lease was signed.
Read more at Bisnow.com.
