Why Some Mall Owners May Not Mourn a Sears Bankruptcy

For decades, hundreds of malls around the country relied on Sears as an anchor store, drawing in shoppers hunting for appliances and home goods. Today, however, the iconic retailer is a shell of its former self, and reports indicate that it may declare bankruptcy as soon this weekend. Even a potential deal with lenders to keep it afloat through Christmas would likely involve closing some of its stores immediately.

For mall landlords that have seen vacancies rise this year to levels not seen since the wake of the recession, the impending liquidation of yet another major tenant would seem to be a major threat — but not everyone sees it as such.

According to the The Wall Street Journal, many of the country’s top mall owners are eager to get Sears out as soon as possible so they can redevelop the space and lease it to other tenants at up to six times the current rent.

The beleaguered department store locked in most of its leases decades ago and in many cases pays a fraction of what a new retailer, co-working space or gym might offer (though the size of the stores means landlords would likely need to find multiple tenants to fill a single space).

In its second-quarter 2018 earnings report, Sears Holding Corp. spinoff Seritage Growth Properties, a real estate investment trust that holds most of Sears’ most valuable properties, said the big-box chain paid an average of $4.30 per square foot in rent, compared with the $17.58 per square foot paid by its non-Sears tenants. Seritage is also run by Sears’ billionaire CEO, Eddie Lampert, and has been gradually reducing its exposure to the retailers’ financial woes by closing and remodeling prime-location stores and installing new, more profitable tenants.

The upside of the newly empty space will likely be felt only by those landlords that are already well-positioned to succeed; however, for lower-trafficked B- and C-level malls in less affluent areas, the shuttering of an anchor tenant could be disastrous, particularly since many have already seen stores like Bon-Ton, Macy’s and JC Penney close up shop.

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