The owners of Bridgeport Village in Tigard have sent a letter of default to Regal Cinemas, one of the shopping center’s largest tenants. Regal, which admits it hasn’t paid any rent since March, has filed suit against Bridgeport Village to block an eviction.
Regal has been unable to operate the theater due to COVID-related lockdowns. It now owes more than $1 million in back rent and other costs to BV CenterCal LLC, the outdoor mall’s developer and co-owner.
Neither the mall nor the theater chain would comment on their dispute.
The pandemic and resulting recession fueled a crisis in both commercial and residential real estate. Business owners and homeowners alike have been unable to pay their rent or mortgages since the pandemic began last spring. Restaurants, hotels and movie theaters, among others, have struggled to survive the economic freeze, while newly unemployed workers lack the cash to make their rent.
Real estate sources said the pandemic is hastening profound change. Internet sales are booming while brick-and-mortar retailers struggle. The largely successful experiment of working from home has led to significant speculation that demand for office space will plummet.
“I’ve never seen anything like this, it really is a once-in-a-lifetime event,” said Craig Sweitzer, a prominent commercial broker in Portland. “And we’re not done. We’re maybe halfway through this.”
Sweitzer said he fears a “massive adjustment downward of real estate values.”
On the other hand, Sweitzer credited many landlords for trying to work out compromises with struggling tenants: “That’s been encouraging to see.”
Ashley Heichelbech, of Commercial Realty Advisors NW, said a hallmark of a successful lease restructure is consistent communication between tenant and landlord.
“What we see happening is when there is a disconnect, someone goes dark or silent, that’s when we see the breakdown,” she said.
Indeed, there is little evidence in the record that there was any communication between Regal and CenterCal outside the various legal filings.
CenterCal unveiled Bridgeport Village in May 2005. It wasn’t a traditional mall, but rather an outdoor “lifestyle center” boasting nearly 500,000 square feet of space. Located strategically near Lake Oswego, Bridgeport catered to an upscale market with Saks Fifth Avenue and Crate and Barrel among its larger tenants.
The relationship between Bridgeport Village and Regal dates back to 2003, when Regal started construction on an 82,917-square-foot theater at the site. With 4,100 seats split into 18 different theaters, it was one of the largest Regal complexes in the region. Regal claims in court filings it has spent $10.5 million on initial construction and renovations since then.
Everything seemed to go just fine until last spring, as the coronavirus pandemic made landfall in North America.
Movie theaters across the country were shut down overnight. That day came Oregon Gov. Kate Brown’s March 23 “stay home” order. Movie theaters and thousands of other businesses had to close immediately to contain spread of the disease. Only a handful of theaters have reopened since, and theaters in the Portland area are under a new closure order as infections surge to record levels.
Theater chains across the country are struggling with empty seats as the pandemic keeps crowds away – and as movie studios withhold their blockbusters for a time when they hope fans will return. Regal’s parent company was facing bankruptcy this fall, but arranged a $450 million loan last week to stay afloat.
Recognizing the financial toll the lockdown placed on businesses, Oregon political leaders instituted a ban on commercial evictions as the stay home order took effect. But that expired at the end of September.
On Oct. 14, Bridgeport Village’s owners issued a default notice to Regal. The mall’s owners notified Regal it intended to terminate the lease. “Landlord may terminate Tenant’s tenancy for failure to timely pay rents and other payments that come due” after the eviction ban expires, the notice read.
To block the eviction, Regal sued in Washington County Circuit Court on Oct. 26.
Regal argues the timing of the economic lockdown and the expiration of the ban on evictions are immaterial to the current clash. The terms of its contract with the mall allows Regal to delay rent payments in the event of certain developments “beyond the reasonable control” of either party. Among those developments are inclement weather, strikes, riots and “restrictive governmental laws or regulations.”
Regal argues that Gov. Brown’s economic lockdown order last March qualifies as exactly that. And therefore, when the order went into place, Regal no longer had to pay its rent.
As a result, the mall has no legal right to terminate the lease or evict Regal, the theater chain argues.
It convinced a Washington County judge to issue a temporary restraining order against the mall’s ownership on Oct. 28. Bridgeport Village subsequently filed a request to transfer the litigation from state to federal court.