Calculating the Impact of Sears Bankruptcy on Retail Real Estate Markets
Sears Holdings Corp. officially filed for chapter 11 bankruptcy protection on Monday, and while that news wasn’t entirely unexpected, clearly there’s much more at stake beyond an iconic American retailer’s fight for survival. There’s significant impacts for the retail sector to consider, as well as the overall commercial real estate industry.
A report by CBRE shows the bankruptcy affects roughly 380 Sears stores and 342 Kmart locations (prior to closings) across the U.S., Puerto Rico, and Virgin Islands, totaling an estimated 100 million square feet of owned and leased real estate.
Sears, which lined up $1.875 billion in bankruptcy financing for existing loans and to fund stores during bankruptcy, believes it can reorganize around roughly 300 profitable stores. Still, the retailer indicated it plans to close 142 stores, leaving it with roughly 580 stores.
CBRE’s Global Head of Retail Research Melina Cordero says, “While this event long has been anticipated, backfilling department-store real estate always is challenging. Sears’ bankruptcy will hasten the evolution of many malls into centers with a bit less retail but more of other uses such as apartments, hotels, restaurants, offices, distribution and entertainment.”
Perhaps, that’s where the silver lining may be revealed in the opportunities that savvy mall owners uncover. CBRE notes mall owners have anticipated Sears’ potential closure for several years, and have made contingency plans that could mitigate the increased supply of available space.
In fact, Kimco Realty Corp. indicates that it expects to benefit from considerable mark-to-market and long-term redevelopment opportunities as a result of Sears’ bankruptcy filing.
Kimco’s Conor Flynn says, “Today’s announcement 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. Given the highly favorable demographics of these locations, along with the continued demand for well-located, high-quality real estate, we expect to build on our past success in creating value by re-tenanting and redeveloping these below-market anchor spaces and activating underutilized parking fields.”
CBRE notes the bankruptcy process considerations include:
• ESL Investments’ initial bid for “a large portion” of Sears’ stores likely to be required to go through auction process. • Ramifications of Sears closures for co-tenancy, or “kickout” clauses, is anticipated to be minimal. • Mall or strip center owners facing the imminent shuttering of a Sears or Kmart face a protracted recovery process. It often takes 18 to 36 months to backfill a typical department store, but the complexity of this bankruptcy filing will make this less than typical. • The vast majority of Sears stores (>87% of boxes) are in regional malls. • Most Kmart stores are in strip centers or stand-alone locations. • Possibilities for replacement tenants include clusters of retailers or restaurants, apartments, hotels, entertainment venues and nontraditional mall retailers such as grocers, health-care providers and educational users.
Dennis Kaiser is Vice President of Content and Public Relations for Connect Commercial Real Estate. Dennis is a communications leader with more than 30 years of experience including as a journalist and in corporate and agency marketing communications roles. He is responsible for Connect’s client content operations and is involved in a range of initiatives ranging from content strategy, message development, copywriting, media relations, social media and content marketing services.
In his most recent corporate communications roles, he led a regional public relations effort across Southern California for CBRE, played a key marketing role on JLL’s national retail team, and was responsible for directing the global public relations effort at ValleyCrest, the nation’s largest commercial landscape services company.
In addition to his vast commercial real estate experience, Dennis has worked on communications and launch strategies for a number of residential projects such as Disney’s Celebration in Florida, Ritter Ranch in Palmdale California (7,200 homes, 22,000 acres), WaterColor in Florida and PremierGarage in Phoenix.
Dennis’s agency background included firms such as Idea Hall and Macy + Associates. He has earned an outstanding reputation with organization leaders as a trusted advisor, strategic program implementer, consensus builder and exceptional collaborator.
Dennis has developed and managed national communications programs for Fortune 500 companies to start-ups, both public and private. He’s successfully worked with journalists across the globe representing clients involved in major-breaking news stories, product launches, media tours, and company news announcements.
Dennis has been involved in a host of charitable and community organizations including the American Cancer Society, Easter Seals, BoyScouts, Chrysalis Foundation, Freedom For Life, HOLA, L.A.’s BEST, Reach Out and Read, Super Bowl Host Committee, and Thunderbirds Charities.
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