The owners of a shopping center and outlot fast-food restaurant building are the first known landlord bankruptcy cases filed during the COVID-19 pandemic in metro Detroit, but the second in a decade for the property’s corporate owner.
Mount Clemens Investment Group LLC and Mount Group LLC, both registered to Yasser Hammoud, filed for Chapter 11 bankruptcy protection June 19. Filings in the U.S. Bankruptcy Court for the Eastern District of Michigan say Mount Clemens Investment Group, which owns a Burger King building, claims assets of up to $50,000 and liabilities of $500,001 to $1 million owed to up to 49 creditors; Mount Group, which owns the strip center, claims $1 million to $10 million in assets and liabilities with up to 49 creditors.
The case, which is before Judge Maria Oxholm, is the first of what is expected to be a wave of not just commercial real estate-related bankruptcies, but corporate bankruptcy filings overall.
Crain’s reported last week that many businesses are surviving on government loans, rent deferments and other emergency funding in the wake of the COVID-19 public health and economic catastrophe, but that will soon evaporate.
“At least in the early days of the pandemic, banks have been granting payment relief to their customers for commercial loans secured by real estate,” said Doug Bernstein, director of the business law department in the Bloomfield Hills office of law firm Plunkett Cooney PC.
“Once the deferrals burn off, the big issue is how are you going to service the loan payments, especially if you now have vacancies or you, as a landlord, have granted rent relief. If the lender isn’t willing to work with its customer or if the property no longer generates enough revenue to service the debt, that’s when the wave of bankruptcies likely will start.”
The filing comes nearly 10 years after Mount Clemens Investment Group, then run by Mostafa and Tamer Afr, filed for Chapter 11, citing a decision by Great Atlantic & Pacific Tea Co. Inc., the parent company of the former Farmer Jack grocery chain, to stop paying rent at its Mount Clemens location and others.
Crain’s reported at the time that A&P stopped paying rent at 24 locations in the region in an effort to avoid $150 million in lease payments. Bankruptcy court documents from 10 years ago said that Mount Clemens Investment Group asset values ranged from $5.67 million to $6.7 million, while debts included an $8.3 million liability to the bank and another $20 million in secured claims, plus $331,000 in unsecured claims.
Farmer Jack grew out of a single store founded in 1924 in Detroit by immigrant Tom Borman and grew through a series of acquisitions and expansions before it was acquired in 1989 by Montvale, NJ.-based A&P.
In 2007, A&P decided to leave the region, vacating 66 stores. Twenty were either bought or leased by Kroger Co.
A message was left with Afrs as well as the attorney who represented them in the 2010 bankruptcy.
Mount Clemens Investment Group under its current structure with Hammoud at the helm owns a Burger King restaurant building at 54 N. Groesbeck Highway north of Cass Avenue and Mount Group owns the 109,000-square-foot strip center that had formerly been anchored by a Farmer Jack grocery store.
It is now home to a Planet Fitness location and the Macomb Athletic Club, plus outposts for Dollar Tree, Subway and CSL Plasma.
Mount Clemens Investment Group paid $11.5 million for the property in 2005, according to city land records, and transferred the shopping center to Mount Group a year and a half ago.
Robert Bassell, the attorney representing Mount Clemens Investment Group and Mount Group, declined comment other than to say: “The companies believed that filing now would maximize the value of the assets, minimize litigation costs and preserve local businesses.”
A meeting of creditors has been scheduled for July 23.
Hammoud was made registered agent for Mount Clemens Investment Group in October 2017, according to state business records. The previous registered agent was Anthony Vespa, who was made registered agent in June 2017 by Mostafa Afr.
Both tenants and landlords have been grappling with the ripple effects of government-ordered business shutdowns that started in March as the state attempted to curb the spread of the COVID-19 pandemic, which has killed more than 5,900 in the state as of Sunday.
Tenants struggling to bring in revenue have been subsequently struggling to pay rent, putting landlords in the position of having to defer or forgive the monthly payments, or in some cases, take tenants to court.
“Certainly commercial real estate, and especially retail space, was very challenged pre-COVID, and in the wake of COVID, I think we can expect that that’s going to continue and it’s going to accelerate, at least in the near term,” said Larry Lichtman, senior attorney for Detroit-based Honigman LLP. Unfortunately, smaller private mom-and-pop businesses, both landlords and tenants, are going to be disproportionately affected. They just weren’t in a situation to weather all of this as well as the much larger national and public companies.”