Signs of distress at retailers Big Lots Inc., Express and the Children’s Place could spell more trouble for the reeling commercial-real-estate market, according to Barclays Research.

Corporate bankruptcies have been rising since a pandemic lull, with filings in January touching the highest level since 2020, according to Epiq, a bankruptcy-services company, and Barclays.

In February, discount retailer Big Lots Inc.
BIG,
+4.71%

reportedly began looking for financing after years of losses and waning liquidity, according to Bloomberg News. Kids’ apparel company Children’s Place Inc.
PLCE,
+28.57%

also began exploring new financing, while fashion retailer Express Inc.
EXPR,
-11.95%

has been looking to restructure its debt and potentially file for bankruptcy, according to the Wall Street Journal.

While corporate bankruptcy filings remain low from a historical perspective, the uptick comes as the buffer of low pandemic interest rates evaporates, along with government stimulus payments.

January saw the most bankruptcy filings by corporations since 2020, signaling a growing threat to commercial real estate.

Bankruptcy filings can be painful for the commercial-real-estate industry, since tenants can reject their leases in bankruptcy court, a process office-sharing company WeWork has been pursuing since its November filing.

See: WeWork files for bankruptcy, capping a stunning downfall

“The Children’s Place tenant tends to occupy smaller stores and has already significantly curtailed its physical stores, limiting the future impact of a bankruptcy filing,” according to the research team at Barclays led by Lea Overby.

However, Big Lots, with its estimated 1,400 stores, and Express pose more of a risk to investors in commercial-mortgage bonds, the Barclays team wrote in a Wednesday client note. Express has more than 600 stores, including its menswear Bonobos locations.

Big Lots, Children’s Place and Express didn’t immediately respond to requests for comment.

Commercial-real-estate values have already fallen 21% from their pandemic peak, while a growing wall of maturing debt is bearing down on borrowers and lenders against a backdrop of higher rates. Write-offs on soured loans look to be a growing risk for regional and community banks.

Read: Regional-bank stocks are back under pressure as investors get ‘a dose of reality’ about obstacles to cutting rates

Big Lots shares were up about 3.3% on Wednesday, while shares of Children’s Place were roughly 28% higher and shares of Express were up about 7.1%, according to FactSet. Shares of all three are down between 37% and 75% on the year.

See: Big Lots’ stock tumbles as Wall Street’s top bear sees more than 80% downside



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