Landlords turn vacancies into opportunities

“One of the key tenets of our business plan is capitalizing on the embedded opportunity with our portfolio to redevelop anchor boxes,” said Sandeep Mathrani, CEO of GGP, on a conference call this week.

To date, GGP has spent some $2 billion redeveloping 115 of its properties, noted CNBC this week. This is yielding some “very attractive returns,” Mathrani said on the call. Some of this space has been filled with such retail newcomers as Indochino, UnTuckIt and Forever 21’s Riley Rose, but GGP’s creativity is hardly stopping there. The firm has signed a deal with residential REIT AvalonBay Communities to build residential units at a mall in Seattle.

“This represents our belief that high-quality retail centers can be densified with other users, given the location and market demand,” Mathrani explained.

“We like that GGP is methodically addressing the contraction of department stores,” wrote RBC Capital Markets analyst Wes Golladay in a note to clients, as quoted by CNBC. As retail REITs face headwinds from retailers’ woes, “favorable financing activity and aggressive buyback activity” could help GGP in the longer term, Golladay observed.

Meanwhile, Sears announced that an additional 45 Kmarts and 18 Sears stores will close in late January. The full list of the stores to be closed in January can be seen here.

GGP is not the only REIT getting creative with old department store space; Simon, Macerich, PREIT and Seritage Growth Properties (the spinoff from Sears Holdings) all have exposure to Sears and other shrinking chains. But PREIT announced this week that it aims to replace a former Macy’s store with two off-price retailers. Earlier in the year the firm brought in Burlington, Dick’s Sporting Goods, Field & Stream and HomeGoods, all of which are expected to generate more sales and higher rent than the department stores they are replacing.

“The Macy’s redevelopment offers an opportunity to bring highly sought-after, first-to-market retailers to a vibrant market — enabling us to further distinguish the property,” PREIT Chairman and CEO Joseph F. Coradino said.

Simon is investing some $1.3 billion in about 30 redevelopment projects and adding pop-ups and restaurants, and the firm is also embracing such nonretail uses as hotels, apartments and office buildings.

“The dot-com era didn’t kill the mall, and the current retail headwinds won’t kill off [Simon’s] ‘A’ malls either,” wrote Boenning & Scattergood analyst Floris van Dijkum in a note to clients, as quoted by CNBC. “We believe that [Simon] has significant room to grow ... through the selective redevelopment of anchor boxes.”