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After Sears Declares Bankruptcy, Kimco Looks To Recapture Below-Market Leases

With Sears Corp. declaring bankruptcy Monday, Kimco Realty Corp. officials said hours later that they plan to recapture the Sears and Kmart store sites in the REIT's real estate portfolio and bring them back up to market rate.

Sears at the Whittwood Town Center in the Los Angeles submarket of Whittier, Calif.

Sears Holdings, which operates the Sears and Kmart retail chains, currently has 14 lease agreements with Kimco for three Sears and 11 Kmarts nationwide, according to a Kimco news release.

Sears Holdings only represents 1.9% of Kimco's total gross leasable area.

“Today’s announcement may afford us the long-awaited opportunity to recapture boxes with significant mark-to-market potential in our core markets and sparks several new redevelopment opportunities within our portfolio,” Kimco's CEO Conor Flynn said in a news release.

Kimco's announcement comes as Sears — facing a $134M debt payment due Monday — finally relented and filed for bankruptcy, marking an end to the 132-year-old retail company. The company still has about 500 Sears and 360 Kmart locations.

Retail owners have known for years that this was probably the most likely outcome for Sears and some landowners have been planning to redevelop many of these big-box stores. 

Kimco officials said in the past three years, the company has reduced its Sears and Kmart holdings in its portfolio and recapitalized the vacant big-box stores.

In eight of those recaptures, the company said, it has been able to average a rent spread of 211%. In Los Angeles, Kimco was able to subdivide and re-lease a former 50K SF Kmart at the Vermont-Slauson Shopping Center to a Ross Dress for Less and dd’s Discounts for a total rent spread of 748%.

Kimco officials said on average the 14 Sears and Kmart store leases only pay about $5.25/SF, among the lowest rents of any tenant in the company's portfolio. 

Retailers in the company’s portfolio average $15.95/SF, according to Kimco.

With strong market demographics in some of the locations about to be let go by Sears and Kmart, Kimco said it is planning to recapture the real estate.

Officials said among those they are looking forward to bringing back to market is a 140K SF Sears at the Whittwood Town Center in the Los Angeles submarket of Whittier.

A second Sears big-box location they are looking to take back is an 89K SF Kmart at the Bridgehampton Commons in Bridgehampton, New York. And another is a 114K SF Kmart at the Kendale Lakes Plaza in Miami.

“Given the highly favorable demographics of these locations, along with the continued demand for well-located, high-quality real estate, we expect to build on our past success in creating value by re-tenanting and redeveloping these below-market anchor spaces and activating underutilized parking fields,” Flynn said.