Macy’s in Plymouth Meeting, Pa., is nearly void of
customers Nov. 29.
Tribune News Service
— Empty nesters often downsize into space better suited to their
do ailing department stores that sit empty due to new competition
and the rise of digital shopping.
month, Macy’s Inc. announced it was forming a strategic alliance
with Brookfield Asset Management to increase the value of its real
estate portfolio. That portfolio is getting trimmed as falling
traffic means fewer bricks-andmortar stores. Macy’s — like
Sears — is suddenly taking on more the role of landlord than
department store. Both are looking to profit by inviting other
retailers — and even new-concept department stores — into
their old spaces.
part of a long-term shift as the department store struggles to be
more relevant,” said Eric Rothman, portfolio manager at
CenterSquare Investment Management in suburban Philadelphia.
“They need to close stores in unprofitable locations, and a big
part of their value is the real estate. They can sell, release or
reinvigorate these properties to free up capital” with the aid
of real estate firms.
after Christmas, the parent of Macy’s and Bloomingdale’s is
expected to identify the 100 Macy’s stores that will close in
early 2017 — on top of 38 that closed earlier this year.
knows that much of its inventory sits on prime real estate and it
must better manage its remaining stores.
Brookfield, which has experience in managing assets in retail,
office, multifamily, industrial and hospitality.
the partnership, Brookfield has exclusive rights for up to 24
months to create a “predevelopment plan” for each of about 50
Macy’s stores. The retailer can add stores and land to the deal.
with Brookfield “is the best way to unlock the potential of
those assets,” said Terry J. Lundgren, Macy’s Inc. chairman
Green, who consults retailers on long-term strategy, said:
“Macy’s has begun to realize that, like Sears, the value of
their company is in their owned real estate.” So Macy’s needs
to “unlock“ some value “by either subleasing portions of
their store, or, more likely, selling the box and dirt it sits on
to real estate investors.”
raises two key questions, Green said: Is Macy’s still a retail
company? And what will be the ultimate size and use of its
said executives could shrink traditional Macy’s selling spaces,
or chunk them off and open its offprice Backstage format somewhere
in the four-wall box.
another faded mall anchor, has also been in paring mode for the
last few years. In July 2015, it created New York-based Seritage
Growth Properties, an independent real estate investment trust, or
REIT, to better manage its remaining assets.
growth strategy is based on taking space away from Sears. The
trust bailed out Sears Holdings by buying 266 Sears and Kmart
stores for $2.7 billion. Seritage gets 78 percent of its rent from
Sears Holdings, which occupies all but 11 of the stores.
pays Seritage rent of $4.31 per square foot on average, which is
far below market rate.
aims to capture higher rates by slicing up Sears anchor stores
into smaller spaces and re-leasing them.
tenants within malls pay an average of $11.23 per square foot, and
newly signed third-party tenants pay $18.95.
has the right to “recapture,” at no cost, up to 50 percent of
the space now occupied by Sears in 224 properties. And it can
recapture all of the space at 21 locations for a termination fee.
owners like PREIT and developers call this “repurposing” the
the REIT “is consistent with our plans to focus on our best
stores, reward our best members, and pursue our best
categories,” said Sears Holdings spokesman Howard Riefs.
a big role in Macy’s transition is PREIT, which has been
“replacing many Sears department stores throughout its portfolio
with popular retailers across various segments,” PREIT CEO
Joseph Coradino said.
2012, Coradino said, PREIT malls had 27 Sears stores, and today,
the firm has 11. He said he expects PREIT to get back up to five
Macy’s stores from throughout its portfolio among the 100
anticipated to close nationally, and demand for their spaces was
there’s the possibility of new-to-market department stores,”
he said. “There’s off-price retailers — of the luxury as
well as more traditional variety — popular, big-box, and
large-format stores, grocers, as well as lifestyle, dining, and
sky’s the limit, but what these stores won’t be is a Macy’s