A former Borders bookstore in Chicago’s Beverly neighbourhood has sat empty for about four years, reviving last Halloween as a costume shop, then going dark again.
“When it was functioning as a Borders, it was a bustling Borders,” said Erin Ross, executive director of the 95th Street Beverly Hills Business Association, a trade group for business and property owners on the Chicago thoroughfare. “It’s just kind of a source of disappointment right now.”
Empty stores from retailers that went out of business years ago – such as Borders Group, which had big floor plans that are hard to fill – are dotting shopping centres across the US at a time when the rest of the commercial real estate market has rebounded.
They are now going to be joined by thousands of additional stores that will soon be vacant as retailers such as RadioShack file for bankruptcy and department store operators including JC Penney and Macy’s cut locations to save money.
Vacancies at US regional malls rose to 8 per cent in the fourth quarter from 7.9 per cent a year earlier, partly because of Sears Holdings store closures, according to Reis. The real estate recovery for neighbourhood and community shopping centres has “remained at a snail’s pace”, the New York-based research firm said in January.
“Net demand is a fraction of what it was in the last cycle,” said Ryan McCullough, a senior real estate economist at Washington-based CoStar Group. “Part of that reason is the store closures that have been happening and will be happening.”
Retailers and restaurateurs said last year they planned to close 5,483 locations, more than double the 2,592 in 2013, which was a record low, according to a report by the International Council of Shopping Centres and PNC Financial Services Group.
Last year’s total was the highest since 2010, according to the study.
Since then, retailers including the apparel chains Wet Seal and Cache have filed for bankruptcy. Fort Worth, Texas-based Radio-Shack, with about 4,000 locations, sought protection from creditors last month.
More troublesome for landlords than the smallish Wet Seal and RadioShack locations are the spaces being abandoned by JC Penney and Macy’s. Replacement tenants will be difficult to find for those stores, with their large footprints.
Macy’s, based in Cincinnati, said in January that it would cut 14 of its approximately 790 store locations within a few months. Plano, Texas-based JC Penney said it would close 40 stores around the US this year.
“That’s where I see the most pain,” said Garrick Brown, vice president of research for the western US at the commercial real estate brokerage DTZ in Sacramento, California. “What I’m really worried about is the department store space.”
The toughest locations to fill will be such stores outside thriving retail districts, according to Kris Cooper, a broker at Jones Lang LaSalle.
“There is no easy answer in a tertiary market for a 100,000 square foot Penney’s box that’s vacant,” said Mr Cooper, who handles retail property sales. “It just takes patience.”
One store that JC Penney plans to shutter is at Eastland Mall in Columbus, Ohio. Back in 2006, the mall, with more than 1 million sq ft of retail space, was valued at $60 million.
The mall’s owner said in late February that it planned to put Eastland up for auction, with bids starting at $5m.
Eastland’s previous owner, Glimcher Realty Trust, turned it over to creditors last year in a deed in lieu of foreclosure. The mall has a vacancy rate of about 30 per cent, according to a marketing document from Auction.com, which was conducting the sale.
To understand the challenge faced by the owners of empty department store space, one need look no further than Borders stores like the one in Chicago that have sat vacant for years.
Shorewood Development Group bought the former Borders in the Beverly neighbourhood, on Chicago’s south side, for $1.75m in December 2013, according to county property records.
The 25,000 sq ft building has 108 parking spaces and is near stores operated by the home improvement retailer Menard and Walmart’s Sam’s Club, according to a Cushman & Wakefield document that advertises the property to potential tenants.
Voicemails for Louis Schriber III, the chief executive of Buffalo Grove, Illinois-based Shorewood, were not returned.
“People understand why it’s taking a long time,” said Ms Ross, of the 95th Street Beverly Hills Business Association. “It was built to be Borders.”
A former Borders store on South Lake Avenue in Pasadena, California, has suffered a similar fate. That location was shuttered about four years ago and has been mostly empty since, with the exception of seasonal use as a Halloween shop, like the Chicago property.
The Pasadena property has three floors, including a large basement, with more than 41,000 sq ft, limiting the number of potential tenants, said Matthew Sullivan, a managing director at Lee & Associates, which is marketing the store for sale.
The building, in a “prime area of Pasadena”, was purchased through Auction.com a couple of years ago by a Chinese investor, Mr Sullivan said, declining to identify the buyer.
The owner wants to lease or sell the building. There is no asking price, he said.
“It’s a little too big for everybody we’re working with,” Mr Sullivan said. “If it was on one floor, it probably would’ve been leased or sold a long time ago.”
Far easier to fill will be spaces being abandoned by Radio- Shack.
The locations range from about 2,500 to 3,500 sq ft, according to Anjee Solanki, national director of retail services at the property brokerage Colliers International. Such footprints can be used by mobile phone stores, yoga studios and pizzerias. The size of the RadioShack stores “opens up for a lot more options”, said Mr Brown of the brokerage DTZ.
Last week in a bankruptcy court in Delaware, Standard General, RadioShack’s biggest shareholder, prevailed in a bid for the retailer’s assets.
Standard General said it would keep 1,743 stores open and preserve about 7,500 jobs; the chain had 4,000 outlets when the bankruptcy hearing began last month.
RadioShack’s leases also have attracted bidders including the haircut chain Great Clips and videogame retailer GameStop.
However, the bankruptcy proceedings will drag on for at least a while yet.
Last week’s losing bidder, Salus Capital Partners, said it planned to raise its bid significantly from its initial offer of $271m.
Across America, the landlords who will feel the least pain from the range of store closings announced this year are those with top-tier retail centres with little empty space.
Pain is more likely for owners of so-called Class B and C properties already struggling with low occupancies and plentiful competition nearby.
“Retailers over-retail and cut back,” said Marc Halle, manager of the Prudential Global Real Estate Fund.
“It’s going to hurt retail, but it hurts the B, C product. It has a marginal effect on A product.”
Real estate investment trusts will be able to largely shrug off this year’s store closures, with most large enough to experience little impact from the cutbacks, said Jason White, an analyst who follows shopping centres for the research firm Green Street Advisors.
Publicly traded real estate investment trusts (Reits) own some of the best US retail properties, meaning that finding tenants for newly empty space is rarely a problem, he said.
“For the Reits, this is a manageable level of square footage that is coming back to them in one form or another,” Mr White said.
Those likely to suffer more are smaller landlords unable to spread their leasing risk among hundreds of properties, said Ryan Severino, a senior economist at Reis.
“There are some centres that are going to struggle for a long time,” he said.
“If not permanently.”
* With additional reporting by the Associated Press
