bankruptcy chapter 11

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In what was one of the first major retail bankruptcy since thenovel coronavirus struck the US, J Crew recently filed for Chapter 11 protection. Then,Neiman Marcus became the first major department storeto file for bankruptcy during the pandemic. Gold's Gym was up nextand the list goes on. Those retailers are just a few of themany companies facing restructuring andbankruptcy.

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The challenges these retailers and other real estate companieswill face as they restructure are numerous and include recruitment,onboarding, legal and financial challenges.

Rebuilding the Board

One important but often overlooked challenge should be added tothat list: properly restructuring a board post-bankruptcy,according to Rusty O'Kelley, co-leader of the Board &CEO Advisory Partners and global leader of Board Consulting andEffectiveness Practice at Russell Reynolds Assoc.

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rusty o'kelley RustyO'Kelley, co-leader of leadership and executive search firm,Russell Reynolds Assoc.

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He tells GlobeSt.com that when it comes to rebuilding aboard, there is a clear roadmap to success. The first step? Startearly. O'Kelley notes that too many companies wait until late inthe restructuring process, but that leads to rushed results.

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Second step, he says, is identify the keytenant, the board chair. "Just like in real estate, having a strongname in that seat will help with recruitment for the other openspots."

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The third step is to determine the optimal size."Larger isn't always better with corporate boards." He adds that asmall team of strong performers can have a big impact.

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The fourth, O'Kelley explains, is to look for the right mix ofexperiences. "The group as a whole has to tick all the boxes, andeach individual has to work well together."

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Lastly, it is key to be clear on the opportunities and therisks. This, he says, will be a substantial undertaking foreveryone involved, and everyone needs to be aligned on commonobjectives, with the potential of significant reward.

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Deb Barbanel LosAngeles-based Deb Barbanel, who specializes in real estate andleads the Global Real Estate Practice and is also a core member ofthe Board & CEO Advisory Partners at Russell ReynoldsAssoc.

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Watching the Metrics

As companies struggle to regain their footing, they must scourall indicators to see how they are performing in real time. Thesecompanies should look at everything, says Los Angeles-based DebBarbanel, who specializes in real estate and leads the Global RealEstate Practice and is also a core member of the Board & CEOAdvisory Partners at Russell Reynolds Assoc. "They are looking ateverything from monthly rental income to debt covenants to thefinancial health of their tenants." If they are a publicly tradedcompany, she adds, they are seeing their stock price every day,"knowing that it doesn't reflect the true value of the portfolio,which creates other stresses."

Recruitment 

Recruitment in real estate is a challenge right now, but notimpossible, with firms being creative on important or trulyaccretive hires, Barbanel explained. She tells GlobeSt.comthat "there are few industries that are more personal, high touch,or more built on in-person meetings. Real estateprofessionals respect and thrive being together."

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What that means in terms of recruitment, she adds, is that it isin a bind, at least at the executive level. "For the most part,executive searches are continuing, and interviews are taking placevirtually, but for senior-level hires, it is highly unlikely thatan offer will be made until a final in-person interview canoccur."

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In looking more junior in an organization, such as VP-level andbelow, certain firms are proceeding ahead with hiring, sheexplains. "Real estate companies are becoming moreadvanced in their ability to onboard virtually, to leveragetechnology and virtual tools, and to bring new employees up tospeed quickly, even when completely remote."

Rethinking Composition

According to Barbanel, going through a bankruptcy also providesa company the opportunity to rethink their composition. "Many realestate boards are filled with real estate professionals, but wouldbenefit from looking at directors with diverse backgrounds,especially those with skill sets related to digital and technology,consumer industries, and marketing," she says. "Each ofthese areas are critical to real estate companies right now, andboard-level expertise would be incredible valuable."

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Additionally, she says, "making sure the full board is fluent inESG issues, especially sustainability givenreal estate's impact on the environment, will be critical in thecoming years.  To not be well versed as a board is tolikely miss out on substantial growth and value-creatingopportunities as a company."

Diving Into the Sectors 

As GlobeSt.com has reported, hospitality and retailare in tremendous pain as consumers are not out shopping ortraveling. According to Barbanel, the office sector is also feelinguncertainty because "while most white collar businesses are stillopen, there is an open question around how long people will workfrom home, and how companies will adjust their space needs over thecoming years." Relatively speaking, she adds, industrial and datacenters are doing well and residential is holding okay right now.Homebuilders, however, have seen a meaningful slowdown and arestruggling to show and sell lots and homes, she adds.

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Keep an eye out for the June issue of GlobeSt. RealEstate Forum where we examine leadership issuesincluding transparency and open communication. Also, check out ourMarch issue, where we took a deep dive into all things ESG.

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Natalie Dolce

Natalie Dolce, editor-in-chief of GlobeSt.com and GlobeSt. Real Estate Forum, is responsible for working with editorial staff, freelancers and senior management to help plan the overarching vision that encompasses GlobeSt.com, including short-term and long-term goals for the website, how content integrates through the company’s other product lines and the overall quality of content. Previously she served as national executive editor and editor of the West Coast region for GlobeSt.com and Real Estate Forum, and was responsible for coverage of news and information pertaining to that vital real estate region. Prior to moving out to the Southern California office, she was Northeast bureau chief, covering New York City for GlobeSt.com. Her background includes a stint at InStyle Magazine, and as managing editor with New York Press, an alternative weekly New York City paper. In her career, she has also covered a variety of beats for M magazine, Arthur Frommer's Budget Travel, FashionLedge.com, and Co-Ed magazine. Dolce has also freelanced for a number of publications, including MSNBC.com and Museums New York magazine.