The Sears exit would leave big holes in the shopping centers. Some owners welcome that.
The Sears exit would leave big holes in the shopping centers. Some owners welcome that.
Imminent bankruptcy threatens to widen the gap between the most successful shopping centers and those in difficulty.
The owners of shopping centers with fashion stores, lively restaurants and other forms of popular entertainment have continued to thrive. Many of these owners would appreciate the departure of Sears, said mall owners and analysts. Departing from the department store would allow them to take a large box space and lease it to a more profitable tenant.
In shopping malls where leases were signed decades ago, Sears rentals could be as low as $ 4 per square foot. New tenants in the same space could contribute up to six times that amount.
However, for mall owners in economically depressed areas, where there is often still an excess of current retail sales and much of the old pedestrian traffic has migrated to online shopping, the loss of Sears as a primary tenant could be worrying. The brand continues to attract some consumers, and many owners would have difficulty finding another large tenant to take the place of Sears.
Several other department stores, such as
J.C. Penney
Co.
Y
Macy's
Inc.,
they have been closing weaker locations and are not eager to lease space in shopping centers, while other chains, such as Toys 'R' Us Inc. and
that once occupied the big box spaces are out of business.
"The top 50 mall owners in the country were dying to get Sears out of the mall, so they're thrilled," said Corey Bialow, executive director of Bialow Real Estate LLC, a firm that represents retail tenants. "Where it's going to hurt more [is] in the shopping centers that are already struggling. The loss of Sears could affect pedestrian traffic in places where customers do not have access to Nordstrom. Sears is still a relevant brand in the heart of the country, and the closures there will inevitably be affected. "
Either way, the owners of the shopping malls seem to be ready for Sears to leave. Sears has hired M-III Partners, a boutique consulting firm, to prepare a bankruptcy declaration. The company, which had 866 Sears and Kmart stores as of August 4, It has not been profitable for seven consecutive years. and has closed hundreds of locations.
As of October 1, the company operated 380 full-line Sears stores, less than half of the 919 that operated in August 2008, according to AggData.com, a location data provider. Kmart has been reduced even more drastically: only 360 were open by mid-July, compared to 1,498 a decade ago.
Some of the biggest Sears lenders are pressing for the retailer with problems to liquidate Instead of trying to reorganize through the bankruptcy process, The Wall Street Journal reported Thursday. However, even if the departmental store and its controlling shareholder and CEO Edward Lampert follow a restructuring plan to keep the brand alive, that could lead to the closure of hundreds of Sears stores.
Many owners have anticipated this type of reorganization and have already made contingency plans for their large warehouses, auto centers and Sears Kmart stores, which are also owned by the holding company.
In Yonkers, New York, the owner of Cross County Shopping Center, which has rented a three-story, 250,000-square-foot building from Sears for about 40 years, does not consider his departure a cause for concern.
The center is currently leased 98% and sees a fair amount of pedestrian traffic, said Craig Deitelzweig, executive director of Marx Realty, owner of the outdoor center with Benenson Capital.
By offering a fireworks show on July 4, sponsor family days with inflatable homes for children and add new restaurants like
and Jamba Juice, the shopping center has remained committed to the community, said Deitelzweig.
"We are not worried about whether space can be filled in," he added. "We can accommodate not only Sears, but any other tenant who may go under."
But there are hundreds of shopping centers and outdoor shopping malls all over the USA. UU They have a wave of vacant spaces looming and will face new leasing challenges if their main tenant closes their doors.
Sears, a US retailer since 1886, has been struggling in recent years, closing stores, selling assets and lending money. But it was not always like this. Gordon Weil, author of "Sears, Roebuck, USA." Review the history of the retailer. Stock Photo: Getty
"It becomes an additional burden for a center that is trying to repair itself because it's just another problem they have to rectify," said Neill Kelly, senior vice president at CBRE, which focuses on retail restructuring.
For some heavily affected shopping centers, the Sears outlet would not even be the first department store to fail this year. The Chicago Ridge Mall lost its Carson store after the chain's parent, Bon-Ton, declared bankruptcy and the new owners liquidated the 267 stores. The mall also has a Sears.
A spokeswoman for Starwood Retail Partners, the mall owner, said the company is working on ideas for the space Carson used to occupy, but declined to comment on Sears.
Real estate investment trusts were sold after The Wall Street Journal reported late on Tuesday that Sears was preparing for Chapter 11, and amid massive market sales. The FTSE Nareit Equity Retail index fell 3.6% from the close on Tuesday, and
Y
Properties of CBL & Associates
Inc.
they were among the REITs that declined, falling 4.1% and 3.7%, respectively, since the close of Tuesday.
The largest owner of a mall in the United States and the one with the most Sears, he said he has 43 Sears in his shopping centers. Washington Prime Group has 42 stores, according to data from Wells Fargo Securities and SNL REIT Datasource. Washington Prime is managing its exposure to Sears and has redevelopment plans for several stores, a company spokeswoman said. CBL & Associates started the year with 40 stores, but said it expects to reach 28 by the end of the year.
But in each case, Sears' income represents less than 1% of the total revenues of these mall owners, according to Wells Fargo Securities and SNL. This helps mitigate some of the financial impact, but an exit from Sears could have a negative impact.
For example, if the owner can not find a replacement tenant, the so-called coter- ance clause would allow other tenants in shopping centers to seek rent reductions or terminate lease agreements.
A liquidation of Sears would also pose problems for holders of debts backed by shopping centers where the retailer operates. More than $ 10.6 billion in loans that became securities backed by commercial mortgages that financed retail properties. These properties have a Sears or Kmart among their top five tenants, according to data firm Trepp LLC.
According to a Trepp report published on Thursday, the lower the quality of the shopping center, the greater the risk. Still, a liquidation "would not be the death sentence" for all of these shopping centers, in part because many of the worst performing Sears stores have already been closed.
-Peter Grant contributed to this article.
Write to Esther Fung in esther.fung@wsj.com
Corrections and Amplifications
After this article was published, Simon Property Group said it had 43 Sears stores within its shopping center portfolio. An earlier version of this article said that Simon had 59 Sears stores, based on data from Wells Fargo Securities and SNL REIT Datasource. (October 12, 2018)
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