Landlords Are Slicing Up Vacant Big Box Stores To Get New Tenants — And It’s Working

big box retail

Across Florida, Seritage Growth Properties, the publicly traded Sears REIT, has been working quickly to repurpose old Sears and Kmart stores since the department store retailer went bankrupt in 2018 and closed more than 100 stores in the U.S.

A year ago, the firm transformed an 88,400-square-foot Hialeah Kmart into a shopping plaza featuring Bed, Bath & Beyond, Ross Dress for Less and dd’s Discount. Nearby, the company plans to convert a recently shuttered Sears store and auto center at the Westfield Mall into a movie theater and retail spaces that will house Ulta Beauty, Five Below and Panera Bread. In Gainesville, Seritage redeveloped another Kmart store, totaling 139,100 square feet, into an office building for the Florida Clinical Practice Association and the University of Florida College of Medicine.

The strategy is paying off. According to Seritage’s Q4 2019 quarterly report, the firm is collecting new national retail rents averaging $20.35 a square foot compared to $7.51 a square foot that was being paid by Sears and Kmart. In Miami-Dade County, average asking retail rents were $38.18 per square foot in Q4 2019, up from $34.81 during the same period in 2018, according to Colliers International. Seritage also increased the share of non-Sears tenants from 54.3 percent in 2018 to 83.3 percent last year.

The demise of Sears, Kmart, Sports Authority, Toys ‘R’ Us and other major department store retailers in recent years jolted big box landlords in South Florida and across the country. To fill their empty massive stores, some property owners have followed Seritage’s formula of splitting up a big box to attract discount apparel companies such as Ross and Burlington, which do not need as much space as a traditional department store. Others have been lucky enough to fill entire stores by luring grocery chains like Sprout and furniture retailers like At Home.

“Seritage and all other landlords are taking advantage of what were low rents from Sears and Kmarts and creating a value-add opportunity by leasing to higher paying tenants,” Alan Esquenazi of Colliers International said.

Infill ideas

A few landlords, such as shopping center developer Raanan Katz, are planning ambitious mixed-use projects on former big box sites. Katz’s company RK Centers wants to transform the site of a Sears building in Fort Lauderdale into a massive development that would have four towers with 854 residential units, a 192-room hotel, 11,065 square feet for restaurants, cafes and a food hall and 86,990 square feet for retail, office and art gallery spaces. In the city’s burgeoning Flagler Village neighborhood, the proposed project was first presented at a Fort Lauderdale design review committee meeting in January.

In Lantana, a small town in Palm Beach County, Miami-based builder Saglo Development Corp. wants to redevelop a Kmart on an 18.6-acre site on Hypoluxo Road and South Dixie Highway into an apartment complex. A preliminary plan shows five four-story residential buildings with 209 units, a clubhouse, pool and 508 parking spaces. In January, the Lantana Town Council voted to approve a land use map change for the property from commercial to mixed-use.

“Shopping centers formerly anchored by big box stores are usually well located in the heart of mostly residential areas with strong traffic counts, good access and ample parking,” said Nick Banks, a principal and managing director with Avison Young.  “This makes malls excellent candidates for redevelopment for other uses. Multifamily options in these projects help bring residents to the doorstep of remaining retailers. Furthermore, cities are in favor of infill development like this as the pathway to achieving increased density.”

“Despite vacancies caused by national chains faltering, big box retail is stable overall in South Florida,” Colliers’ Esquenazi said. “In certain markets, I have a lot of new vacancies and rental rates are going down. That is not the case in Florida. We had a solid year. Rental rates are better than we’ve had in three years.”

According to a Colliers International Q4 2019 report, the vacancy rate for big box retail stores in South Florida is below 5 percent with properties in Miami-Dade faring slightly better than those in Broward (see chart on page 30).

“There’s a perception that landlords are not finding new tenants because big box stores will remain vacant for long periods of time even when there are signed leases,” Esquenazi said. “It takes about a year to fill the space. But it’s not due to a lack of demand. The negotiations, getting letters of intent, signing the lease, obtaining permits and starting construction takes a number of months to complete.”

Esquenazi said his practice specializes in big box stores and represents chains, such as Target, Kohl’s and 24-Hour Fitness, among many others that are adding new locations in South Florida. Dick’s Sporting Goods, for instance, took over shuttered Sports Authority stores in at least five South Florida locations, including Sawgrass Mills Mall, Midtown Miami, Dadeland Station and Aventura.

“Obviously, Dick’s knew where Sports Authority’s best stores were and jumped on them,” Esquenazi said. “Dick’s is one example of expanding retailers. Then you have your off-price retailers like TJ Maxx, Burlington, Ross and Marshalls that remain strong.”

Supermarket Rescue

“Grocers are another hot category that helps boost big box-anchored shopping centers,” said Ian Weiner, president and CEO of Pebb Enterprises, a Boca Raton-based commercial real estate investment firm. “It took nearly two years to land the right tenant to fill a large chunk of a 42,000-square-foot store that housed a Sports Authority at the Shoppes at Isla Verde in Wellington. Rather than replacing it with any big box, we were looking for a tenant that could change the dynamics of the shopping center. In today’s environment retailers are also being extra cautious in making decisions. Quick deals are not easy to come by.”

In July 2018, Pebb announced Sprouts, a fast-growing grocery chain offering fresh, natural and organic products, was opening its first South Florida location, taking 30,000 square feet in the former Sports Authority space. A month later, Pebb sold the Shoppes at Isla Verde — which has a Best Buy, Ulta Beauty, and Petco — to MetLife Investment Management for $73.75 million. Pebb still handles leasing and property management for the 207,030-square-foot outdoor shopping center.

“Adding Sprouts increased the value of the shopping center,” Weiner said. “It adds a lot more foot traffic having a grocer versus a Sports Authority, and the investor pool is a lot better for grocery store-anchored shopping centers.”

Last year, Pebb was also able to find a large tenant to fill an 126,000-square-foot big box store that was once occupied by Gander Mountain, an outdoor apparel company that filed for bankruptcy in 2018, after liquidating merchandise, laying off employees and closing 30 to 40 stores. The home décor superstore At Home signed a 10-year lease and opened its doors last May. Pebb bought the 13-acre Gander Mountain site in April 2018 for $2.6 million.

“We bought it knowing we had potential options like splitting it up or doing an alternative use like industrial,” Weiner said. “But splitting up a big box space is very costly to do. So the best solution is to get a tenant that can absorb the entire space. Each project varies, but it can cost $50 to $100 a square foot to reconfigure a big box for smaller tenants.

“The benefit of splitting a big box store is that a landlord can charge a higher rate per square foot for smaller spaces, said Claudio Mekler, CEO of Miami Manager, a commercial real estate firm based in Sunrise. “A Sears Home vacated a nearly 5,000 square foot space at the Miami Manager-owned Village Shoppes of Coconut Creek in June 2017. Belfort Gym, a tenant at another Miami Manager property totalling 5,963 square feet, was looking to downsize its space by half.”

Mekler said he convinced the gym owners to take half of the space in the former Sears Home store. He then leased Belfort’s old space to another existing tenant, Salon 360, that wanted to expand its square footage.

“Between Belfort and Salon 360, Miami Manager increased its income at these two properties by almost 32 percent compared to the income generated by the old Sears lease,” Mekler said. “Although the other half of the Sears space consisting of 2,338 square is still vacant, we know with the aggressive approach it will be leased shortly.”

 

Source: The Real Deal

Oakland Park Unveils The First Look At Plans To Redevelop City

oakland park

Oakland Park is on the brink of starting redevelopment efforts it hopes could be completed in time for the city’s 100th birthday celebrations in the year 2029.

A new fire station could be built within a self-storage business. The city’s first splash pad soon could jut water for scores of children. And a new library and City Hall could be part of the construction plans.

Fire Station

The fire station, at 4721 NW Ninth Ave., could be moved to a self-storage business that has planned a seven-story building on empty land south of Prospect Road, between Powerline Road and Interstate 95.

Hebert said the city was not enthused about approving another storage building, but changed course when the developer agreed to allow the first floor to become new bays for the engines, and the second floor to become sleeping quarters and a gym for firefighters.

“The idea is to get a new station and save us millions of dollars,” Herbert said. “All we’ll have to do is contribute to our space of the building.” And the neighbors won’t mind: “Who cares if sirens go off during the day? Nobody sleeps in storage buildings.”

The agreement could be finalized within three months.

A New Park

The “City Park” will be created along Park Lane, near the site of the current Public Works building and a fire station that is now along Northeast 38th Street. The public works site will be moved to a new location at the site of a former water plant, and the fire department will be reconstructed, larger, about three blocks away. The Collins Community Center also will be bulldozed.

In the space will be a new Collins Community Center, and the city’s first splash pad. The contract for the splash pad could be finalized by the end of the year. And the park will get a new pickleball court, basketball court, playground and restrooms.

The city’s library will move to City Park, about a mile west, bordering the Harlem-McBride neighborhood.

City Hall

The building off the railroad tracks, at 3650 NE 12th Ave., will no longer be City Hall.

A developer is proposing a five or six-story building of retail, restaurants and the commission’s chambers for public meetings on the ground floor, as well as a parking garage above that, and the top floor as the new City Hall.

“The size will actually grow from a 12,000-square-foot building now,” Hebert said. “We will double the size of the office space.”

The location will be along Dixie Highway, on the south side of Northeast 38th Street, and the city will rent the space from the owner as the main anchor.

No decision had been made about what would happen to the current City Hall site.

Caryl Stevens is the former mayor, and a former board member of the Oakland Park Historical Society, which is now inactive. She has some reservations. While she approves of the idea of a new park, she questions whether giving up City Hall is the right move.

“The whole plans are wild,” Stevens said. “We may be one of the few City Halls that are rented.”

 

Source: Sun-Sentinel

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Investors May Find Safety In Healthcare REITs

Looking for a safe place to put your money to wait out the coronavirus pandemic?

Healthcare stocks and real estate investment trusts in the sector aren’t a bad idea.

REITs and companies that own hospitals, medical offices, and medical science research facilities are expected to weather the pandemic and are considered safe bets even outside of health crises, according to CNN.

Kenneth Leon, an analyst with CFRA Research recommends three entities in particular: Alexandria Real Estate Equities, Healthcare Trust of America, and Medical Properties Trust.

They are each paying dividend yields of between 2.7 percent and 5 percent, making them attractive alternatives to bonds as the Federal Reserve slashes interest rates.

Companies that own senior living centers, however, probably aren’t the best bet. Leon said senior living centers will have trouble safely showing prospective new residents their facilities, pointing out that many underwent lockdowns during the flu seasons of 2018 and 2017.

The spread of Covid-19 is putting pressure on most other real estate sectors, particularly residential markets in areas with numerous cases of the virus. Home sales are down in Milan and Italy’s Lombardy region, for example. Daily deals in Seoul are down 90 percent.

Miami-Dade County has suspended all eviction activities as part of its declaration of a state of emergency.

New York landlords are stockpiling soaps and hand sanitizers and ramping up cleaning of their buildings. After an employee tested positive for the virus, Newmark Knight Frank stationed nurses at its Park Avenue office to screen clients and employees.

 

Source:  The Real Deal

Bill That Could Hurt Cities For Changing Their Zoning Moves Through Florida Legislature

rezoning

Florida’s Bert Harris Act, passed in 1995, allows property owners to seek compensation if a municipality changes its zoning or land use regulations and the land loses resale value.

A bill that would tweak that law, improving the process for property owners, is now making its way through the state legislature. Critics say it could be a disaster for local governments and taxpayers, exposing them to massive financial liability and hampering their ability to adjust how properties may be used.

An analysis prepared for the Senate’s rules committee described an instance of a Hollywood developer in 2002 buying land to build a 15-story condo after confirming zoning regulations with the planning and zoning director. However, when nearby residents opposed the project, the city reduced height limits to 65 feet. (The developer sued under the Bert Harris Act but lost on appeal in 2018 because it had never filed a formal application to develop the property.)

More recently, the city of Anna Maria put zoning limits on vacation rental units, then faced more than 100 Harris Act claims, with property owners demanding more than $37M, the Tampa Bay Times reported. The city ended up settling and reinstating the lost units.

In Venice, an effort to combine two parcels for the construction of some 1,300 homes failed to pass the city council, but last week, as a Bert Harris lawsuit loomed, the council rescinded and changed its vote.

Jay Daigneault, a lawyer who represents several beach communities, told the Tampa Bay Times an amendment to the Bert Harris Act now being proposed in the state legislature — as House Bill 519 and its companion Senate Bill 1766 — would be “a nuclear bomb to local regulation of land use.”

The bill would make it easier for property owners to make claims under the Bert Harris Act. Initially, the wording would have allowed for any compensation or settlement under the Harris Act to apply to other properties “similarly situated,” thus exposing governments to massive judgments. That provision has since been removed from the Senate version of the bill.

“Nonetheless, very damaging provisions remaining in both bills that reduce the time for governments to respond to Harris claims from 150 to 90 days, increase the likelihood of governments paying the property owners’ attorney fees, and make such challenges easier to bring,” activist group 1000 Friends of Florida stated. “The House version of the bill was worsened through an amendment to include making attorney fees recoverable for property owners but not local governments and negating the requirement that magistrates overseeing claims be certified mediators.”

“If passed, the bill would facilitate compensation for property owners, but local governments would likely exercise caution when imposing new rules and more claims will likely be submitted,” the analysis prepared for the Senate committee stated.

The bill has passed multiple legislative committees already. Florida‘s regular annual legislative session ends March 13.

 

Source: Bisnow

No Sign Of Glut As Industrial Development Tops 390M Square Feet

Developers completed construction of 289 million square feet of industrial and logistics real estate in the U.S. last year, but any concerns of oversupply are tempered, as only 39 percent of space in new construction was available.

That’s a major factor in vacancies staying near all-time lows in 2019, according to a new report from CBRE. The CBRE analysis finds that at 22.2 percent, Central and Northern New Jersey ranked among the top five markets nationally with the lowest vacancy rate for 2019 completions.

Deliveries outpaced the 255 million square feet of new absorption, but with robust leasing from occupiers, especially ecommerce and retail firms that often require modern building design and amenities, supply and demand dynamics remain healthy. A vacancy rate of less than 50 percent is considered healthy for newly delivered industrial properties.

“As New Jersey’s industrial market continues to break leasing and rental rate records, new developments are being snapped up by space users at a rapid pace,” said Thomas Monahan, Vice Chairman. CBRE. “While the development pipeline remained robust with 28 buildings and 10.3 million suqare feet currently under construction, the demand for high quality product is far outpacing supply.”

Another major factor contributing to the strong absorption of new construction is the increase in built-to-suit development — the construction of space for a specific space user. This segment made up 28.1 percent of new construction activity, as companies increasingly need unique requirements to meet their specific demands.

In markets with over four million square feet of new development, Kansas City finished 2019 with the lowest overall vacancy rate for 2019 construction completions at 7.3 percent, followed by Miami, Baltimore, and Greenville, SC, which all had vacancy rates for newly constructed product under 20 percent. Dallas-Fort Worth was the strongest core market, with nearly 75 percent of the 25 million square feet completed in 2019 taken.

Supply fundamentals should remain stable this year, as already 33 percent of the 309 million square feet under construction nationwide is already accounted for. A preleasing rate of 25 percent for under-construction product typically are indicative of a solid leasing environment.

 

Source: Real Estate Weekly