Structurally flawed businesses that made it through 2020 are in greater danger of imploding in the second half of 2021, potentially meaning further pressure on stakeholders in commercial real estate, said Doug Greenspan, a managing director at A&G Real Estate Partners. Greenspan made these observations during an online Feb. 23 panel at the 2021 Turnaround Management Association Distressed Investing Conference.

“In dealing with the pandemic, all kinds of businesses were temporarily able to hide behind the turmoil in the markets, and enormous amounts of capital were available to them,” Greenspan said. “As a result, the United States just didn’t see the level of distress in 2020 that some observers were expecting—particularly with respect to bankruptcy filings.”

Greenspan predicted that more operators with fundamental flaws will succumb as the year progresses. “Those businesses that were struggling pre-pandemic are going to surface quickly,” said Greenspan, who played key roles in Melville, NY-based A&G’s real estate advisory work on behalf of Ruth’s Chris Steakhouse, and in the GNC and Tuesday Morning Chapter 11 bankruptcy reorganizations. “Unless they can restructure out of court, the pandemic is likely to push them over the edge.”

However, Greenspan also cited the potential for successful vaccination campaigns to revive dining and entertainment in some parts of the country. He also noted a continuing shift toward greater cooperation between retailers and landlords.

Conversely, Greenspan said greater distress among commercial real estate tenants will create challenges for investors, especially those that acquired assets at the top of the market.

“Prior to the onset of COVID-19, cap rates in most markets had been compressed for years, without any significant downturn in real estate property valuations,” he said. “Now we’re starting to see some declining valuations at office and retail properties with significant vacancies. In some parts of the country, office recoveries will be particularly slow, and this clearly will affect nearby retail and restaurant operators as well.”