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NREI: Pending Sears Buyout Puts Regional Mall Owners in Limbo

According to NREI:

Sears Holdings Corp. Chairman Eddie Lampert put in a winning bid to buy the struggling retailer out of bankruptcy earlier this month following the company’s Chapter 11 bankruptcy filing in October. But the “rescue” Lampert is orchestrating to keep the lights on at more than 400 Sears and Kmart stores is not necessarily welcome news to mall owners.

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Although Lampert has not disclosed much detail on his post-buyout strategy, his end game appears to be to keep Sears going, only with a smaller footprint of stores. “It seems from the outside perspective that he’s doing everything he can to keep the company afloat,” says Spenser Allaway, an analyst with Newport Beach, Calif.-based research firm Green Street Advisors. Yet the reality is that the company is in a complete structural decline and has lost all competitive advantage, she adds.

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One upside of the Lampert rescue plan is that it could buy some time for private landlords and regional REITs to plan for an eventual Sears departure. Some of the lower productivity REITs don’t have as much capital or liquidity to address those vacant anchor boxes, notes Allaway. “So, if (Lampert) is aiming to keep many of these stores open, that could be a short-term win for these landlords,” she says. First, it would give them more time to identify replacement tenants, and secondly, it will allow them more time to meet the capital requirement necessary to either redevelop or subdivide the space to accommodate smaller tenants. “Those tend to be very capital-intensive projects, and some of the REITs do not have the capital on hand to address all of the vacant boxes at once,” adds Allaway.

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