For most, the February 26th announcement that Sears Holdings Corp. closed 234 Sears and Kmart stores last year, with more closings scheduled for 2015, does not seem like good news.
Sears’ reported discussions to put 300 of its best performing stores into a REIT to generate extra cash reinforces that the company is failing. Last year, Sears lost $1.7B and has seen several quarters of lagging sales.
However, this could be a great opportunity for commercial real estate landlords and investors. Sears and Kmart stores have underperformed for years, meaning that they aren’t bringing in traffic to shopping centers. With the termination of leases, there are more opportunities for the owners of malls to boost overall revenue.
Some hot retailers filling former Sears stores include Forever 21 and Whole Foods.
Aside from retailers, more alternative tenants could replace Sears and Kmart stores. Many retail landlords have been creative in making their formerly retail-only shopping centers vibrant mixed-use developments as a result of big-box vacancies.
A credit-tenant lease is always the goal of a landlord, but if those tenants are leaving, then taking less rent for a crowd-drawing experiential concept may ultimately be in their best interest.
Here are a few popular examples:
• A former Kmart just outside of St. Louis was converted to a small-business campus, housing tech startups and other small companies.
• The Weingarten Realty REIT wants to turn a former Sears building in Houston into a retail-entertainment center. The developer plans to bring in shops and restaurants, while keeping with the design of the original “Americana”-styled Sears that was built in 1959.
• In Cedar Rapids, Iowa, an aerospace company has housed their headquarters and storage in a former Kmart space.
Image Source: Nicholas Eckhart, Flickr