Entrance to Forever 21. Photo: Trong Nguyen/Shutterstock.com

Forever 21 Inc.'s bankruptcy spells out further retail real estate evolution as uses from housing and hotels to medical marijuana grow houses could replace shuttered stores, brokers said.

The Los Angeles-based clothing and accessories retailer filed for Chapter 11 reorganization Sunday in Delaware with the growth of e-commerce especially among its targeted young shoppers. Forever 21 grew in popularity as a fast fashion store offering trendy apparel at bargain prices.

Forever 21 will close a third of its 534 U.S. stores, but it's unclear whether any of its 11 South Florida locations will shutter. The retailer said in a news release that it still is determining which locations to close, although it added that it doesn't expect to exit major markets.

In South Florida, the retailer has stores in top-performing malls with high foot traffic, including Aventura Mall, Sawgrass Mills in Sunrise, Dolphin Mall, Miami Beach's Lincoln Road and Town Center at Boca Raton. It also has stores at Miami International Mall in Doral, The Shops at Sunset Place in South Miami, Pembroke Lakes Mall, The Gardens Mall in Palm Beach Gardens, Palm Beach Outlets in West Palm Beach and the Palms at Town & Country in Kendall.

Colliers International's Katy Welsh, senior director retail services in Boca Raton, said she expects stores will remain in trophy assets such as Aventura Mall but could close at Class B and C malls.

Closures would open the door to repurposing traditional retail space, a trend already underway with the decline of big-box retailers, prompting new tenants to eye vacated spaces. Downtown Miami's Macy's and Sears at Boca Raton's Town Center closed last year along with several Toys R Us locations.

Broker Jaime Sturgis said he has received inquiries from marijuana growers and esports companies about opening in space vacated by other retailers, and developers are eyeing the real estate for housing and hotels.

Sturgis, founder and CEO of Native Realty Co. in Fort Lauderdale, said no one had contacted him yet about Forever 21 space, but "there's a lot of different options. Some are conventional and some are outside the box."

Forever 21′s average 38,000-square-foot store size, high ceilings, electrical supply and lack of windows make the spaces well-suited for grow houses and esports, Sturgis said.

Esports are live competitive multiplayer video gaming events that draw large crowds.

Welsh, the Colliers retail broker, also said any local Forever 21 closures could prompt evolution of the traditional mall into mixed-use developments. Vacated space could make way for offices or entertainment, although this is more likely for Class B and C malls rather than top performers.

"It seems to be the trend that malls are turning more into a community center where they are bringing in office, residential, hotels and service-oriented, more entertainment-based type of tenant," Welsh said. "A lot of the malls are now turning the food court into a food hall, adding electricity at every table so you can sit there and work. That's what everyone is looking for."

All these additions are coming at the expense of disappearing or downsizing clothing stores as consumers increasingly buy their clothes online and mainly use brick-and-mortar locations for returns, Welsh said.

Still, she added, brick-and-mortar clothing stores will remain in some form as consumers tend to shop online at stores they have visited. One type of Forever 21 store that is likely to survive is the smaller, 10,000-square-foot location at open-air shopping plazas. They will do well especially if they are next-door to well-performing retailers such as TJ Maxx and Marshalls, Welsh said.

Getting Out of Leases

Forever 21 said it would base its store-closing decisions in part on conversations with landlords but didn't elaborate.

The company has 120 days after its filing to decide which leases it wants to end, according to Aleida Martinez Molina, a bankruptcy and insolvency partner at Weiss Serota Helfman Cole & Bierman in Coral Gables.

Forever 21 has more leverage in Chapter 11 negotiations with landlords when trying to exit some of its leases, Martinez Molina noted.

"At the end of the day, the bankruptcy filing gives the debtor a lot more power," she said, adding landlords should be cognizant of bankruptcy laws and their own bargaining tools. "It's not like Forever 21 can walk away from the obligation, but it certainly changes the dynamics with the landlords."

If Forever 21 wants to end a lease with time remaining, it won't be on the hook for the balance of the lease. Instead, a landlord is entitled to payment of the greater of one year's rent or 15%, not exceeding three years, of the remaining lease term, according to Martinez Molina.

Forever 21 was founded in 1984 by South Korean couple Do Won Chang and Jin Sook Chang. They were ranked by Forbes as billionaires until July when the retailer's sales declined. The company with 800 stores in 57 countries said it would close most of its stores in Asia and Europe but keep its stores in Latin America.

To continue operations and honor gift cards, it obtained $275 million in financing from its existing lenders including JPMorgan Chase Bank N.A. as well as $75 million in new capital from San Francisco-based finance firm TPG Sixth Street Partners, according to a news release.

"The financing provided by JPMorgan and TPG Sixth Street Partners will arm Forever 21 with the capital necessary to effect critical changes in the U.S. and abroad to revitalize our brand and fuel our growth, allowing us to meet our ongoing obligations to customers, vendors and employees," Jin Sook Chang said in the release.

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