Monday, December 10, 2018

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People walk through a nearly empty shopping mall on March 28, 2017 in Waterbury, Connecticut.

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People walk through a nearly empty shopping mall on March 28, 2017 in Waterbury, Connecticut.

Even with Sears and Bon-Ton filing for bankruptcy protection this year, and shutting hundreds of locations in the process, there still are more than 350 million square feet of department stores blanketing malls across the U.S. And that’s likely way too much.

Macy’s, J.C. Penney and now-bankrupt Sears — which still has hundreds of locations open — continue to evaluate their massive real estate portfolios, and industry analysts expect more store closures to come. In turn, younger digital brands are looking to grow, but not with hundreds of stores of more than 50,000 square feet in size.

A new report from commercial real estate advisory firm Green Street Advisors determined that all the department stores still open in the U.S. could fill 350 average-sized malls — by themselves. That’s just how many of them are left, and how big they are. Macy’s has the largest share of square footage in malls, followed by Penney, Sears, Dillard’s and Belk, based on Green Street’s analysis.

Source: Green Street Advisors

“Sears closures (which add to BonTon’s liquidation and closure of stores) have left landlords grappling with a wave of big box vacancies that are expensive to re-tenant,” Green Street Advisors analyst DJ Busch said. “The situation will deteriorate further before it gets better.”

Many U.S. mall owners, except for top-tier landlords Simon and Taubman, are “ill-equipped” to face an inevitable wave of more department store closures, he added. He cited companies like CBL, PREIT, Washington Prime Group and Macerich as examples of those that won’t have enough capital to redevelop anchor boxes at their properties “in a reasonable time period.” He anticipates more and more landlords will be forced to sell assets or look for other ways to raise capital, which could cut into profits.

Busch also warns that landlords with lower-quality malls, like CBL, are becoming increasingly distressed as they take on more debt to finance their lofty redevelopment plans. CBL — which is based in Chattanooga, Tennessee, and operates 141 properties — said Tuesday it was making “significant progress” on a slew of redevelopments, including one where it added a Round1 bowling and entertainment facility to Jefferson Mall in Louisville, Kentucky. In 2019, it said it will take an old Sears at Hamilton Place in Chattanooga and add a Dave & Buster’s. It’s also looking to add casinos to some properties to replace department stores.

Mall owners are expected to talk more about their redevelopment strategies this week at the ICSC Deal Making conference in New York, which brings together retail landlords and tenants.


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