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Shopping Centers Today -> March 2001
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ANCHOR CLOSINGS JOLT LANDLORDS
By Donna Mitchell
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RETAIL
STORE CLOSINGS
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The collapse of venerable chain retailers Montgomery Ward and Bradlees in December sent mall owners on a major hunt to replace empty anchor slots. Coupled with scores of store closings planned by three other major retailers, the situation has prompted a number of questions about whether empty spaces will hurt foot traffic and oversupply the retail real estate market.
Chicago-based department store Montgomery Ward announced its liquidation on Dec. 28. The chain will leave a gaping 251-store, 34.1 million-square-foot hole in the regional mall landscape. Just two days earlier, Bradlees, Braintree, Mass., had said it was going out of business, leaving 9.8 million square feet of space up for grabs. The company has to sell leases on its 105 strip centers and freestanding store locations. In January, three retailers poured more bad news on the market. Plano, Texas-based J.C. Penney announced it would close 50 of its 1,100 stores as part of a restructuring program. Office Depot, Delray Beach, Fla., said it would leave markets in Columbus and Cleveland, Ohio; Phoenix; and Boston; and close 70 stores. Cleveland-based OfficeMax said it would close 50 stores and open fewer than 25 new stores this year — significantly fewer than the planned 50 new locations.
Most mall owners — especially those with Montgomery Ward stores anchoring their centers — remain optimistic about their abilities to keep attracting customers once the retailers exit the market. They say that with the poorly performing retailers out of the way, they have a clear shot at finding more contemporary and profitable anchors for their shopping centers.
Montgomery Ward, for instance, anchors 30 of Indianapolis-based Simon Property Group’s regional malls, according to Simon officials.
Simon has lion’s share of Wards
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Once
a thriving department store chain, Montgomery Ward’s
demise leaves a gaping 251-store hole in the retail landscape.
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Simon owns the most properties with Montgomery Ward stores, followed by Chicago-based REIT General Growth Properties, which owns eight malls anchored by Montgomery Ward.
"We’ve enjoyed a lengthy relationship, and view this as an opportunity to replace those locations with even more productive stores that would strengthen the appeal of our centers," said Billie Scott, a spokeswoman for Simon Property Group. General Growth Properties holds the leases of Montgomery Ward stores at two of its regional malls. Bernard Friebaum, the REIT’s executive vice president and CFO, said the company might consider dividing the properties into smaller sections and leasing them out as multitenant buildings.
One
REIT, The Macerich Co., Santa Monica, Calif., had mixed opinions
about Wards’ bankruptcy and its effect on mall traffic. Macerich
owns about five malls anchored by Montgomery Ward.
"The impact of stores the size of Wards is always significant. For the most part, the real estate community is as much positive as negative about what can be done with [the property]," said Dane Smith, Macerich’s director of leasing. Smith noted that some Wards stores have anchored Macerich regional malls for a long time, and their absence could leave a noticeable gap in the shopping center.
Macerich
is slightly more insulated from a loss of foot traffic at malls
where Ward’s serves as an anchor. The REIT purchased a handful
of Wards sites before the retailer filed for bankruptcy, giving
the developer more control over the now-vacant space.
"We proactively went out and replaced the most unproductive stores," said Smith.
The Wall Street Journal reported that Montgomery Ward plans to sell the nearly 100 stores that it owns. It could also sell leases on the remaining 150 units it does not own.
The outlook for Bradlees stores, which operate as anchors in strip centers or on freestanding sites, appears to be promising. That’s because Quincy, Mass.-based Stop & Shop, which owned Bradlees until 1992, has an agreement with the discounter to guarantee almost all of the leases on its properties. That backing effectively makes them the owner of the rights to the leases.
"They [Stop & Shop] will be selling the ones they don’t want to keep, the ones they want re-leased to the market," said one real estate broker. Vornado Realty Trust, Saddle Brook, N.J., owns approximately 15 centers with Bradlees locations. Kimco Realty Corp., New Hyde Park, N.Y., said it owns five strip centers with Bradlees stores. But both companies declined to comment on the bankruptcy issue.
Like its regional mall REIT counterparts, officials at Pennsylvania Real Estate Investment Trust, which owns two centers with Bradlees locations, said it sees the bankruptcy as a chance to attract more effective retailers. One Northeast area broker, who asked not to be identified, expects several high-profile retailers to snatch up some of the Bradlees locations, namely Target Corp. of Minneapolis; Wal-Mart, of Bentonville, Ark.; Lowe’s Cos., the Wilkesboro, N.C.-based home-improvement retailer; and Kohl’s Corp., of Menomonee Falls, Wis.
Concerns about oversupply
About 10% of Bradlees’ current 105-store portfolio could linger on the market after the dust settles from the auction of its leases and could be turned into multitenant dwellings or office space. And expect a duel between Lowe’s and Atlanta-based The Home Depot. "Those guys are going to kill each other to get into each other’s markets," the broker said.Such
optimism was mostly reserved for the auction process. A handful
of market players remain concerned about the prospect of an oversupply
of real estate. Developers start running out of options after the
auctions, said one market source, who has followed the Montgomery
Ward bankruptcy process over the years.
"If a property doesn’t come into the hands of a department store, then it goes to the discounters," he said. And since many discounters like to stick with a one-floor store prototype, they might overlook Wards’ locations, which typically arrange their merchandise on two floors of space.
The recent spate of store closings has prompted some analysts to wonder if enough suitable retailers exist to fill the large vacuum of retail space created by the two chains.
"I think with a consolidating industry, it’s going to get tougher," said one REIT analyst, noting that the retail environment is more restrained than it was 10 years ago, when there were plenty of retailers competing in each other’s markets. They are now trying to avoid being saddled with poorly performing stores that could put a drag on the bottom line, he said.
"They are more skeptical now about going into new spaces," he said.
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