Eventually, a lot of distressed non-grocery anchored shopping centers will start hitting the market.

But the buyers of these centers may not keep them in one piece for long. Instead, in an effort to pay down the debt or execute other strategies, they could sell off the out parcels, according to Jonathan Hipp, principal, U.S. Capital Markets and head of U.S. Net Lease Group at Avison Young.

“That’s a strategy that I think will gain a lot of momentum as some loans start to go to the special servicers and people buy them at a discount,” Hipp says. “One of the strategies will be to try to peel off some of the PADS and pay down the debt. Or existing owners may peel off some of the PADS as opposed to selling the whole center.”

These PADS, or out parcels, could be home to any number of restaurants or retailers, such as  AutoZone, McDonald’s, CVS, Bank of America or Sherwin Williams.

By selling off a PAD, private equity and opportunistic funds can generate returns as quickly as possible.

“It gives them the ability if they choose to pull out some cash and pay down the loan, return of capital to some of their investors or pay down some of their basis,” Hipp says. “It gives them the opportunity to try to do blend and extends, increase the value off of the PADS and help prop up the inline [retail].”

If there is a vacancy among the inline retailers, selling off the PADS could bring down the overall basis, according to Hipp.

There could also be other scenarios that play out.

“Maybe the investor does a blend and extend with those existing tenants, or maybe they put in capital after the other owner didn’t give them some tenant improvement dollars,” Hipp says. “Then they’ll extend the lease 10 years, increase the value in the lease, and pay down their basis on the loan. Or they can pay a dividend to their investors immediately.”

Hipp says the strategy, which was employed during the Global Financial Crisis, has come up in recent conversations with special servicers. “It’s something that is picking up more steam, as you start to see more loans go back because there’s been so much capital raised from guys waiting to buy distress,” he says.

While buyers might quickly sell the out parcels, transforming the rest of the shopping center could take time.

“I’m not sure today that everybody has all the answers, but I think that there will be some smaller footprints that are created, and there will be some new brands,” Hipp says. “Retail has always shown that it is adaptable and smart people find ways to readapt good pieces of real estate.”