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At least publicly, a number of U.S. mall owners have stated that any Sears locations closing as part of bankruptcy proceedings will provide a long-awaited chance to redevelop their shopping centers with healthier, traffic-driving tenants.
“We think this is a unique opportunity,” said David Simon, CEO of Simon Property Group, the largest mall owner, last week on the company’s quarterly earnings call. “We're going to redevelop. We're going to reinvest in the communities. We're going to be able to drive traffic now from this box.”
In a statement, Conor Flynn, CEO at Kimco Realty Corp, said the bankruptcy "may afford us the long-awaited opportunity to recapture boxes with significant mark-to-market potential in our core markets, and sparks several new redevelopment opportunities within our portfolio.”
With many of Sears’ leases locked in years ago at low rates, rents are also expected to rise considerably for landlords with new tenants. Sears has so far revealed plans to close 142 of its 687 Sears and Kmart doors, on top of 46 already set for closure by November.
On the downside, if Sears liquidates, about 100 million square feet of vacant retail space would hit the market. Many malls are already busy redeveloping or struggling to deal with the exit of other major anchors, such as J.C. Penney, Macy’s, Sears as well as Bon-Ton Stores and its regional chains.
Assuming the landlords can reclaim the leases, they face costly and time-consuming redevelopment. According to CBRE, backfilling a typical department store takes an average of 18 to 36 months and sub-dividing the space to suit multiple tenants typically takes longer.
Moreover, converting the anchors into entertainment-oriented offerings such as restaurants, movie theaters or fitness centers holds no promise of success.
Second-tier shopping centers are particularly at risk. More than 70 percent of Sears stores are in class-B and C malls, according to CBRE. The loss of an anchor tenant could trigger opt-out clauses for smaller tenants.
- Kimco Realty Anticipates Significant Value Creation Opportunities from Sears Holdings Announcement – Kimco/Business Wire
- Sears Will End Up in Liquidation, Say Experts, Proving a Mixed Blessing for Mall Landlords – National Real Estate Investor
- Simon Property Group (SPG) Q3 2018 Results - Earnings Call Transcript – Simon Property Group/Seeking Alpha
- Washington Prime Group Provides Department Store Update – Washington Prime
- Many U.S. mall owners say good riddance to Sears - Reuters
- Sears is dying but America's largest mall owner argues it's not all bad – USA Today
- The Slow Death of Sears Is a Crisis for Struggling Malls—and an Opportunity - Bloomberg
- Landlords across America are cheering Sears' bankruptcy - CNN