Lauren Leach: Sears Will End Up in Liquidation, Say Experts, Proving a Mixed Blessing for Mall Landlords – National Real Estate Investor
Lauren Leach was featured in the National Real Estate Investor’s article titled “Sears Will End Up in Liquidation, Say Experts, Proving a Mixed Blessing for Mall Landlords.”
“I’m sure it’s Lampert’s intention to emerge, but liquidation is a likely scenario,” says Lauren Leach, director of real estate advisory services at Birmingham, Mich.-based consulting and advisory firm Conway MacKenzie. “Sears has been selling its real estate for years now, so there’s no way its remaining collateral is worth enough to satisfy its debts.”
“There are two different ways you can look at it. There’s the opportunity and then there’s the negative,” Leach says. “The negative is everyone talks about how the strong malls are getting stronger and the weak malls are getting weaker. Sears’ imminent liquidation will underscore that even more. The weaker malls that have Sears are going to be hammered and crushed when that Sears leaves. For malls that are in tertiary markets or markets where there’s no need for that mall, or there’s already a stronger mall, that landlord is going to have a really hard time backfilling that Sears space.”
That’s what going to tip the scale for some mall landlords, Leach notes. Weaker malls are already feeling the sting of vacancies left by anchors J.C. Penney, Macy’s and Bon-Ton closing stores.
“Most Sears’ leases are so old that the rates are artificially low; they’re well below market rates in terms of 2018 standards,” Leach says. Many of Sears’ leases were signed decades ago, giving its stores very favorable rents. “In malls where there’s leasing velocity and demand, landlords have an opportunity to increase their revenue by backfilling a vacant Sears.” In addition, landlords might be able to bring in more relevant and traffic-driving tenants.
The huge boxes will likely be subdivided and many could be converted into mixed-use spaces, with an entertainment component and a restaurant. “It’s not going to be a department store. That’s for sure,” Leach adds.