Seritage sells former Kmart site in Riverside

REIT liquidates portfolio to address looming maturity on Berkshire Hathaway loan

Seritage's Andrea Olshan and renderings on 3001 Iowa Avenue (LinkedIn, Getty, "Architecture. Design. Relationships")
Seritage's Andrea Olshan and renderings on 3001 Iowa Avenue (LinkedIn, Getty, "Architecture. Design. Relationships")

In early June, the board of Seritage Growth Properties, a publicly-traded REIT that spun off from Sears in 2015, recommended a plan to liquidate the company’s real estate holdings to pay down a massive debt to Warren Buffet’s Berkshire Hathaway.

Now TRD has learned that the New York-based firm’s selling spree has extended to the the city of Riverside in the Inland Empire, where Seritage sold a former Kmart property that it had positioned for a large mixed-use development. Kmart is a subsidiary of Sears.

The buyer was an LLC called 3001 Iowa Owner, according to Riverside County records, a reference to the property’s address; the records also show that the county recorded the deal in early June. The sale was disclosed in a recent Seritage SEC filing, an EX-99 form that listed the properties the firm sold in the second quarter.

Further details of the deal, including the real identity of the buyer and the price, were not clear. A Seritage representative did not immediately respond to questions about the deal.

Seritage, for its part, is working to dramatically reduce its portfolio as the firm — which was founded as a mechanism to retool Sears properties following the retail giant’s bankruptcy — attempts to pay off a potentially devastating debt.

In 2018, Seritage took a $1.4 billion loan from Berkshire Hathway that will be due in full next summer unless Seritage can reduce the balance to $800 million by the end of next July, which would extend the maturity date by two years, according to Costar.

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Earlier this summer, the REIT hired CBRE to sell dozens of properties; in July, the board also recommended a plan to liquidate holdings and return the proceeds to shareholders, a strategy that would require a two-thirds vote from shareholders and already had the backing of former chairman Eddie Lampert. Seritage’s stock price shot up more than 70 percent on that news, to around $11, and has since risen higher. On Aug. 16 it closed at $13.68.

The strategy has meant that Seritage, instead of redeveloping former retail centers into new mixed-use developments, has pulled out of projects, including in hot development markets. The company is also looking to sell land at a former mall in North Dallas, a booming residential market, where two years ago it held a ceremony to kick off a new highrise mixed-use project. The project was never built.

The 13-acre former Kmart property that Seritage sold in Riverside is located a few blocks north of UC-Riverside and near the 215 Freeway. A 97,000-square-foot Kmart opened at the site in 1970 and closed in 2017, according to the San Bernardino Sun, part of the broader decline in the popularity of big box retail.

Seritage planned a mixed-use development for the site, called Iowa Apartments, with retail and 300 market-rate units split among three four-story buildings. The project was designed by AO Architects and intended to appeal to young professionals, according to AO, with amenities that included a pool, co-working spaces and two rooftop decks. In a Seritage release published in March, the firm said it could receive approvals “in mid-2022.” It’s unclear what the sale means for the future of the project.

During the pandemic, the Inland Empire ranked among the nation’s hottest residential development markets — largely thanks to an influx of residents fleeing more expensive parts of California — so the changing ownership of a property slated for a major mixed-use development could have ripple effects.

“People say over and over again, ‘Oh, the millennials are going to stay in the cities,’” Doug Shepherd, a Riverside-based broker, previously told the Wall Street Journal, reflecting on the Inland Empire’s housing surge. “They are not.”

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From left: RK Centers principal Ranaan Katz and Seritage CEO Andrea Olshan in front of the shopping center at 1460 West 49th Street in Hialeah (Google Maps, Seritage Growth Properties, RK Centers)
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