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Roy: Good afternoon, Roy Oppenheim here for our 23rd consecutive week at Zoom at Noon. This week we’re gonna have Ido Alexander, a good friend who’s also partners with Zach Shelomith, who’s been a guest on the show. We’re gonna be talking about strategic uses of bankruptcy when foreclosure and eviction moratoria are lifted. This week, as usual, we will be talking about the weekly economic update. We’re gonna look at the pandemic and where it sits, and then we’re gonna look at strategic uses of bankruptcy as it relates to everything that we’re all going through.

As you all know, our law firm and title company have been sponsoring these Zooms at noon now, again, for our 23rd week in a row. Our law firm has been representing the South Florida community for 30 years. We were deep in the trenches during the last economic foreclosure crisis, and once again, we find ourselves in a similar situation deep in the trenches, but this time representing not just folks in foreclosure but representing landlords and tenants and businesses and everyone who’s trying to figure out how we’re going to come out of this stronger and better. And that’s why we have Ido today to talk about how bankruptcy is an important component of that.

As usual, our team, Ellen Pilelsky, my wife and partner who’s very helpful in putting this together, Geoff Sherman, who’s also directing today, Mia Singh, my senior associate, and Paola Vergara, who is of counsel. And also I wanna thank Lance Oppenheim for helping putting this presentation together today also. In terms of Ido Alexander, I just wanna go over his background briefly. Ido practices bankruptcy law. He represents trustees, debtors, and creditors. He has served as the past president of the Bankruptcy Bar Association of South Florida. And Ido is a frequent speaker on bankruptcy topics, and he’s received a distinguished service award by the Bankruptcy Bar Association of the Southern District of Florida. And, Ido, if you can…can we see Ido?

Man: He’s on mute.

Roy: He’s on mute? Ido, we’ll bring you in a few minutes, but I’m glad you’ve joined us. Thank you. Let’s jump to the weekly economic update. There are a lot of interesting issues I wanna address. You can go to the next slide, slide six. Thank you. Big headline this past week in “The Wall Street Journal” is that retail spending in July has actually reached or topped pre-pandemic levels. And if we take a look, we can see how that is happening because it’s kind of fascinating while there’s so many people who are unemployed at 10.2% currently, and you have so many businesses that are not making it, we’re still seeing that retail sales are starting to increase. If we take the cursor, we can see that…go back. Sorry. If we take the cursor, we can see that right in March, the economic spending completely dropped off and then has quickly come back up and is now in excess of where it previously was.

Go to the next slide. We can see how in-store spending on credit cards has changed from a year ago. We can see that there was this massive spike right before the crisis and the shutdowns, and that’s a function of the fact that people were basically accumulating stuff because they knew they wouldn’t be able to go out. You had this precipitous drop. And then we had a slow incremental increase that, again, continued to…incremental increase that continued to go up and down because what we had was the economy opening and closing based on the pandemic in particular regions of the country. So right now, what we’re seeing is that sales are continuing to come back, but they’re still somewhat below where they were when it comes to in-store spending.

Next page. We’re seeing a recent scene in New York City in front of J.Crew that has gone bankrupt. I think this is on Fifth Avenue, and it’s somewhat, you know, a ghostly kind of characterization of sorts. Page 11. What we’re seeing here is a change in sales from January of the different sectors, and, of course, if we go to the bottom one, the bottom blue one, we can see how grocery…excuse me, clothing actually dropped dramatically but then has increased and increased back to levels that actually are higher than they were before the pandemic. Bars and restaurants are yellow, right? They actually dropped but have not been able to come back because of the restrictions on social distancing. Non-store retailers such as Amazon, we see, obviously, continues to do well. It’s leveled off a little bit. Groceries peaked and then leveled off as bars and restaurants started coming back. And so we’re starting to see a convergence of the mean which is the dotted line. But what we’re seeing is non-store retailers will continue to probably be stronger than before, and groceries will probably remain stronger than before, too. And clothing is kind of interesting. I guess people just, you know, need to spend money on something, I presume.

Next page. A new kind of recession. I think if we look at these charts here, we see existing home sales, which is interesting, have dropped and are starting to come back pretty ferociously, but they’re not coming back to the same levels that they were because so many people are not listing their homes and because there’s a shortage of inventory. There’s, right now, a seller’s market because those people who do want homes and want to have more social distancing in their homes, there’s not that much inventory for that right now. And so what we’re seeing is less activity than there was prior to the pandemic.

Retail sales. This is a perfect example. We’re seeing this big chasm, this huge V, that occurred, and they were talking about, you know, will there be a V recovery. And to some extent, you visually see the V right there, which is just remarkable, and it’s come back to very much to where levels were before the pandemic. So the question is when the pandemic’s over, will there be a form of inflation, will there be so much new activity because people wanna go out, or will things just remain at the levels they are, or will we actually have a recession, a true recession beyond the unemployment that we’re having now where consumer spending starts to roll back and activity stops?

And economist Steve Blitz said it best. Probably, “the real recession has yet to emerge,” and will emerge when the long-term repercussions of the current situation are felt. And I’m not sure when that’s gonna be. Is it gonna be in six months, is it gonna be a year or two years? So that’s kind of an interesting problem. Of course, the overlay is that you have a 10.2% level of unemployment, a level of unemployment that hasn’t been seen literally since the Great Depression. And we have a very combative election that’s coming up. And so all these things are gonna have a unique impact on the economy and are gonna cause, unfortunately, more economic failures and probably a lot more bankruptcies.

In terms of the pandemic, the good news for Florida is that we’ve seen, if we look at the red here, a big drop-off on the number of new cases. Deaths actually have risen a bit, but that’s because the deaths occur usually weeks after a peak. So these deaths now really reflect more the peak of several weeks ago. So as the number of new cases drop, we do expect the number of deaths to also drop. Also, we’re seeing in South Florida that there are hotspots now in the Panhandle and other areas, and we’re gonna see more of that as schools reopen.

So just in the last few days, there have been 107 new virus deaths, you know, deaths from the pandemic. Thirty-seven-hundred new cases were reported in Florida just on August 16th. Over the past week, there’s been an average of 5,801 new cases per day, but that’s still a decrease of 36%. And so as of Monday morning, there have been around over a half-million cases in Florida, and yet we’re still below 10,000 deaths, thank God, that other states have seen over the past several weeks. Where new cases are increasing around the country, U.S. Virgin Islands, Puerto Rico. They’ve been doing pretty well for a while, now they’re starting to see a spike. Other parts of the heartland, North Dakota, Kansas, also Illinois, now Hawaii, Delaware, a little bit South Dakota, Guam, and even Vermont.

Next page. Where new cases are mostly the same, Georgia and Idaho, California. A lot of states are holding their own. New York and New Jersey, things are holding their own. They suffered terribly, and so, fortunately, they’ve been able to hang on. And where cases are getting better, the next slide is interesting. We see that Florida finally is where it should be and that is with cases coming down, which is great news. In terms of strategic uses of bankruptcy, I wanna bring Ido on specifically. Ido, are you there? Let me get you on, buddy. And I wanna start with this new slide if we can. Ido, are you there?

Ido: Yes, I am. I’m trying to…there you go. Hi. How are you?

Roy: Fine. I’m so glad you could join us. Thank you. I want you just to see this slide, then I’m gonna start asking you some questions or vice versa. What we’re seeing here is the year-to-date of the value of real estate investment trusts, which is basically almost a way to see which areas of real estate are doing well and poorly and a function in predicting of which areas of real estate will cause a lot of foreclosures and, of course, bankruptcy. So we’re seeing that industrial real estate, of course, is doing quite well because of warehousing. But we also see at the same time that hotel, resort, and leisure is doing terribly and that retail’s doing quite poorly and office and residential so-so. In terms of new bankruptcies, Ido, I think we even talked about this morning. You know, Stein Mart announced yesterday, Pizza Hut this morning. You know, we understand that The Cheesecake Factory, Denny’s, Outback Steakhouse, and even Dave and Buster’s will all probably be filing very soon. So, the question is what does that mean for the little guy? What does that mean for small and mid-size businesses? And what are you seeing in terms of your practice?

Ido: It’s a big question to unpack there. I wanna comment [inaudible 00:10:06]. First of all, thank you very much for bringing me on your show. I appreciate it very much on behalf of myself and the firm of Leiderman Shelomith Alexander and Somodevilla. I wanna reference something before we start talking about your curve. But if we look closely, it looks like, almost like two divergent factors here. You have industrial going up. You have hotels and other sectors going down. And that goes into some of what you touched on is the economic recession that everybody’s been talking about various letters floating [inaudible 00:10:37]. Do you remember, Roy? [inaudible 00:10:39], V, Nike Swoosh. Do you remember that?

Roy: Of course.

Ido: And the most recent letter that I’ve come across is the K, and what we see here is the K, which I think is on a micro-level specifically for real estate. You could see some of that here with industrial going up while the hotel…specifically hotel is going down. Other ones are pretty much in an autopilot mode to some degree. They’ve taken a hit. But I think a large percentage of the decline in residential office and retail is really attributed to one thing which is the unknown, the uncertainty that’s out there in the market, and that nobody really knows when we’re gonna emerge out of this. Many of the retail bankruptcies that have taken place, you’ll notice that many of those are retail establishments. Many of those were already brick-and-mortars that were already, pre-pandemic, struggling as it was because of the Amazon [inaudible 00:11:45].

Roy: Yeah. I don’t mean to cut you off, but some of the participants are saying that there’s an echo on your mic. If you could maybe just speak a little closer, I think. It’s just [inaudible 00:11:53].

Ido: Thank you. I appreciate that. Let me change. Can you hear me now? Is this better?

Roy: Yeah. It’s much better, much better, much better.

Ido: Okay.

Roy: I’m sorry for interrupting. Go ahead.

Ido: No, no, it’s okay. When we’re looking at what’s happening here, much of that is, if you’re looking at it, it went down, but then it’s sort of staying at the same levels. And a large percentage of that has to do with the uncertainty on the market. As I was starting to say before, you have many large retail bankruptcies that are now occurring. And if you go back pre-pandemic, many of those same establishments, Sears, JCPenney, to name a few, were already having difficult times, and the reason for that was very simple. The brick-and-mortar model was no longer working very well. You had a migration more to the online, and the pandemic woes came in, giving them a final push into bankruptcy. And why bankruptcy?

Well, a big tool in the bankruptcy process is the ability to reject contracts and specifically reject leases. So these big brick-and-mortar locations, that are now a large percentage of their expenditures are tied to their physical location, are filing bankruptcy in an effort to shed many of these costs for stores that are non-performing. And this is a great opportunity to get rid of a 15-year lease for a large shopping center location that a TJ Maxx, for example… That’s a bad example, I mean, they filed but… JCPenney, for example, so one of thoselocations, they can now reject those leases and find themselves in a position where they could streamline themselves to more profitable brick-and-mortar locations as well as their online presence, right? That’s what it looks like. Many of those are all revolving around real estate rejection of leases.

Roy: Okay. So let’s talk about, we have these large, large retailers, some of them are public companies that are going bankrupt. What impact does that have as a ripple effect to the distributors, their advertisers, the folks that provide janitorial services, the folks that have been providing supplies and services and goods that haven’t been paid? I mean, won’t that cause a cataclysmic kind of reaction where other folks will then file bankruptcy because it’s like a set of dominoes?

Ido: Absolutely. And it’s already occurring, but we’re gonna see it on a much more delayed reaction mostly because of the government aid that’s flooded the market. Money right now…money obviously is cheap. The government flooded with, between the PPP loans, the Payroll Protection Payment Act, between the emergency economic disaster loans and all other types of financial assistance that’s out there. It’s created a situation where we’re not gonna see those effects until much later. I can give you sort of my own estimate, but that’s just me looking at the limited data that I have and having talked about…between other attorneys, yourself as well, Roy. I think we’re looking at January…February of 2021 [crosstalk 00:15:15].

Roy: You know, everyone says it’s gonna be after November, and I don’t know what’s so special about November. But everyone says it’s gonna be after November. So, at least we have a few weeks to breathe until then.

Ido: At least until November, exactly. But there certainly is gonna be a delayed reaction here, and many vendors are either scrambling to try to “stabilize their ship,” trying to figure out how they’re going to do without [inaudible 00:15:42] that they previously serviced. Can they do without it? And a big issue that sort of repeats itself for companies of all sizes is the recognition that with a loss of revenue, there needs to be a bigger macro view of how we’re going to proceed. And this is something that I’m sure, Roy, you’ve seen time and again, and I’ve seen it on my end, and that is the recognition that I need to seek counsel early enough and discuss how to proceed before it’s too late.

Roy: I want you to look at the next slide because it’s really fascinating because…and Geoff and I were just looking at this. Geoff Sherman and I were looking at this right before we started. And if we look at this slide, we’re seeing this huge, huge increase in the number of people that are 90 days late, 30 and 60 days late but particularly 90 days late and are already in foreclosure. And if we take a look at that number and we extrapolate it back in time, we’re going back to right where we were in 2008 when the crisis started…began. Okay? And so we’re seeing right now, visually, the tip of an iceberg of what is going to be a foreclosure and eviction tsunami that ultimately will only be stopped by lawyers, government programs, and bankruptcy. And so I wanna talk a little bit about how bankruptcy right now can help folks that are gonna be in foreclosure or that are looking at an eviction as a method in which to try and reorganize, forestall, and figure out, you know, how to get out of this pickle.

Ido: I don’t know if the word “stall” is the most appropriate word as much as “consolidating…”

Roy: I said “forestall,” not “stall.”

Ido: Oh, “forestall.” Yeah, yeah.

Roy: “Forestall,” big difference.

Ido: Absolutely. Absolutely. I think, like you said, we are on the cusp of [inaudible 00:17:30]. The question is what happens next? Once foreclosures will start happening, evictions en masse is gonna start happening. Bankruptcy does come in as a useful tool in allowing the person to, at a minimum, hit a pause button, immediately. So as soon as you file the bankruptcy, you can hit a pause button at least whether it be a very slim period or…can you hear me?

Roy: Yeah. It’s a little difficult. Go ahead.

Ido: Okay. Bad echo, hard to understand him. I’m going to try to switch to a different mic. Let me see if this works. Can you hear me now? Is this better?

Roy: That’s better.

Ido: I have two mics, and I think that’s what’s happening here. They’re competing with one another. But thank you very much for one of the audience members that just pointed that out. What we’re gonna see with this tsunami is there’s gonna start…there are gonna be evictions en masse, foreclosures en masse. And what does bankruptcy do? Bankruptcy allows the person to really aim for either a plan of rehabilitation where they get to pay their debts through a plan or, in the alternative, and that’ll be a Chapter 13 under a Chapter 7, liquidate themselves but put themselves in a position where they can have a fresh start similar to at the end of the process of a payment plan with a Chapter 13, so either Chapter 7, a liquidation, and immediately a fresh start or a Chapter 13 payment plan and a fresh start. But it’s important to sort of note and look at the most critical part, and that is at the moment that you file, what happens is there’s a concept called the automatic stay. And as soon as we file that bankruptcy petition, there’s a stop to everything that’s happening.

Now, the question is what happens the next day after we file? Can the person that’s just filed, can they cure what’s been owed in the past to the landlord and be able to stay on the property? Can they negotiate, as part of the process and the bankruptcy, a solution with their landlord? But what bankruptcy provides is another tool that allows some additional leverage for the debtor, the person that owes the money that is living on the property or otherwise owes the mortgage. It allows them an opportunity to have a second chance to negotiate something with their landlord or a second opportunity to otherwise deal with their mortgage company through the tools that are given in the bankruptcy process.

Roy: In reality, some of the bankruptcy judges have also just been taking their time and giving companies, you know, months in the premises to figure things out.

Ido: Generally, when you file, you have about 60 days to cure…you have 60 days within which you have to assume or reject the contract. That’s a very generous period of time to figure out how you’re going to proceed. It gives you some breathing room, and it gives you an opportunity to go to your landlord and deal with that landlord and figure out, “How are we gonna get back with the relationship or are we not? In which case, we’re going to reject that contract and figure out an alternative solution potentially across the street in a much more financially advantageous lease.” Proverbially [crosstalk 00:21:01]…

Roy: Because if you don’t file for bankruptcy, you only have a matter of days to…

Ido: Correct. Correct.

Roy: Ordinarily, without the moratoriums in place. But once these moratoriums are lifted, it’s gonna be literally like a tidal wave. And so unless people have a plan in place, they could just be wiped out by this wave. And so bankruptcy is gonna give them that chance of that life raft to try and come up with a solution, you know, even though it’s 60 days or a night or whatever it might be.

Ido: You pointed and touched on it. I think really what we’re defining here is time, and what we’re providing is an ability to have, whether an extra week or two weeks or three weeks, some additional oxygen in the form of time to be able to do something else and re-pivot and try to find an additional solution to the problem.

Roy: You know, we have a few questions here. Do you think that this is the end of brick-and-mortar, or what will happen, you know, to…? You know, what will happen to brick-and-mortar?

Ido: What do I think?

Roy: Yeah.

Ido: I’ll start off with traditional retail brick-and-mortar. I think that it’s not going to put the death knell in brick-and-mortar. Those that require brick-and-mortar as part of their model, they’ll continue. I think it’s just in a much more downsized fashion. I don’t think that you’re gonna see the large retail establishments, like a JCPenney department store style, I think that that’s on its way down, out of this world as a model.

As for office space, I think that that model…there’s divergent views on this. Some say that as soon as the vaccine is out and folks can come back to normalcy, normal office life will continue. My view is different, that this has shown a large segment of many companies out there that they could do business differently in a much more lean and efficient manner, which means that office footprint will reduce itself naturally speaking. I’ve spoken to a few people that have already went out there and either renegotiated their lease, terminated their office lease with the idea that they wanna do things differently.

Roy: I think that is the future. I mean, I think there will be a place for brick-and-mortar office. It’s just gonna be different in terms of how it was in the past and that people will be working more from home and from other places, and that nature of work and living space is gonna converge to some extent as we proceed. I want to talk to you about Subchapter 5 and then Chapter 11. We’ve talked about that, and we have just a few minutes left. But it’s a really important subject for small and mid-sized businesses. I wanna emphasize how important that is in terms of what you do and what we do every day. So, go ahead.

Ido: Sure. I’m glad that you mentioned it. So, for those of you who are not aware, August of 2019, Congress passed a new law called the Small Business Reorganization Act. It was part of the Farm Bill. It went into effect February 19th, 2020. Sorry. Something switched on the screen for me. It went into effect February 19th, 2020. It’s a new law that is based on the traditional reorganization regiment that the Bankruptcy Code provided. It just created a new type of Chapter 11 reorganization that’s more tailored for small businesses. What Congress said is, “We recognize that the costs of running a reorganization for a corporation are exorbitant. The process takes a long time, and it’s not tailored for the small business. So let’s do something about it.” And what they did is this thing called the Small Business Reorganization Act, which is now codified as Subchapter V under the Chapter 11 regimen.

What it does is it removes certain costs. It makes the whole process fast. And when I say “fast,” I mean within 90 days, you’re expected to file a plan that shows how you’re going to reorganize, what you’re going to do with respect to this business. It also allowed for additional benefits to the debtor in giving the debtor more leverage as part of their bankruptcy case. And what do I mean by more leverage? It allowed for the debtor that is still operating themselves to reduce the value of secured loans, that is loans that are backed by assets, reduce the amount of that loan to the value of the assets. And while beforehand under the old Chapter 11, you could do that, you required a percentage vote that was a complex formula, I’m not gonna go into it, as to how to get that passed as part of your plan. But now under the new Subchapter V, it allows for a streamlined process where you may need the vote to, just as a, “Are we in favor or not in favor?” But even if your creditors are not in favor, you could still theoretically get a plan approved, whereas under the old regime, Chapter 11 regime, you couldn’t. Now, who qualifies for the Small Business Reorganization Act? Roy, do you know?

Roy: I forgot what the exact numbers are, but it’s with businesses that have a debt owed under a certain million-dollar number.

Ido: Correct. So, in order to qualify for a small business reorganization, the debts have to be in business mostly, majority of which, business in nature for a business. An individual can also take advantage of a small business reorganization. That’s why I’m saying the majority of the debt has to be business in nature. But also the maximum amount was initially set at $2.725 million, but as part of the pandemic and the CARES Act, if you all recall, there was a $2.2 trillion law that came into effect sometime in April, Congress quickly realized that we have this new tool. Why not allow more small businesses to benefit by increasing the maximum allowable debt?

Roy: What’s the new number now? What’s it now, the new number?

Ido: $7.5 million. But there’s a big “but.” And the “but” is that $7.5 million total aggregate debt is only gonna be there for the next, I guess, 10 months. I mean, it was for 12 months, so wherever we are right now. So there’s not many more months that people can take advantage of it. It could be that Congress will extend it. That’s a political question.

Roy: Yeah. I sense it will be extended probably a few times over the next few years. I mean, the reality, and correct me if I’m wrong, and then we have to go, is that historically, these Chapter 11s for small businesses were not terribly successful, and that’s 70% of the time the businesses did not survive, the creditors would just be almost vindictive and wanna pull whatever they could get. And they didn’t give, you know, two hoots about the employees, the people, the history of the company, the services the company was providing to the community. And so now I think Congress is saying, “No, there’s a bigger policy issue. We need to keep these businesses intact. We need to keep them in place.” And that’s gonna be a double and triple down since 60% to 70% of small businesses probably are going to get wiped out as we’re seeing these large businesses are being wiped out. I mean, we’re gonna see even more small businesses wiped out. And so we’ll see the Bankruptcy Code being used as a social tool to try and keep businesses in place, to try and keep the employees in place, and to try and keep, you know, this economy going.

I think in the long run, it’s important to keep these businesses that create the community and create a culture of an environment to keep those folks in place. And I know that you and I are gonna be very busy between the increased foreclosures that are gonna have to be defended, the increased foreclosures that cause more foreclosures, the evictions we’re gonna have to stop, and at the same time trying to help some creditors and lenders on occasion who also have to deal with these issues. And no one’s been immune to this, and that’s why, Ido, I wanna thank you so very much for joining us today and why we will be back next week at Zoom at Noon, number 24, as, once again, Oppenheim Law and Weston Title continue to sponsor this event until such time that no one finds it necessary. And I can’t wait till that day arrives, but until then, we will be here. And we look forward to your support, Ido, as well as Zach’s, your partner, and everyone else, of course, who has joined us today. So, thank you very much again. Roy Oppenheim, Zoom at Noon. See you next week for number 24. Have a great week. Thank you.

Ido: Thank you.