The Real Deal Miami

Retail failures aren’t always bad news for landlords

Abandoned store space presents a chance to sign better tenants and charge higher rents

November 21, 2015 11:00AM

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Some retail landlords buy back leases from failed tenants to sign strong retailers.

Some retail landlords buy back leases from failed tenants.

Poor sales during the year-end holiday shopping season could add to the number of retailers in bankruptcy. But such failures are gifts for retail landlords that can sign better tenants and raise rents.

Brixmor Property Group Inc., for example, bought back three leases from supermarket group A&P paying $6.50 per square foot after the grocery retailer filed for bankruptcy in July.

Michael Carroll, CEO of Brixmor, told the Wall Street Journal that new tenants will pay rents of $20 to $30 per square foot for the former A&P stores.

Carroll also told the Journal, “It’s a good thing in small doses. You don’t want to see 500 to 1,000 stores of 25,000 square feet come back on the market.”

Real estate investment trusts including Kimco Realty Corp. and Federal Realty Investment Trust also bought back leases at their properties from A&P.

Don Wood, CEO of Federal Realty, recently told investors the company wanted to get control of the stores leased to A&P before the supermarket group sold the leases to other retailers.

In addition to A&P, other retailers have filed for bankruptcy this year including American Apparel Inc. and RadioShack Corp.

The Sun-Sentinel reported  that as many as 40 RadioShack stores in South Florida could close after the Texas-based electronics retailer filed a Chapter 11 bankruptcy petition and announced plans to restructure.

However, the overall outlook for retailers appears more stable, according to David Henry, chief executive officer of Kimco, who told the Journal in an interview that “our watch list is as low as it’s been in years.” [Wall Street Journal]  — Mike Seemuth