WWD.com/fashion-news/fashion-features/retailers-gobbling-up-kmart-sites-733763/
government-trade
government-trade

Retailers Gobbling Up Kmart Sites

NEW YORK — The discount sharks have started to feed off bankrupt Kmart. <br><br>Wal-Mart, Home Depot and Kohl’s Department Stores have agreed to purchase at least 21 Kmart locations, and are interested in scores of others around the...

NEW YORK — The discount sharks have started to feed off bankrupt Kmart.

Wal-Mart, Home Depot and Kohl’s Department Stores have agreed to purchase at least 21 Kmart locations, and are interested in scores of others around the country, while J.C. Penney and Target are also in on the real estate action, but to a lesser extent, according to Kmart bankruptcy court papers.

Initially, Wal-Mart, Home Depot and Kohl’s were considering 179 stores, which had an aggregate price of $84 million, but it could not be determined from court papers precisely how many were purchased.

One prime metropolitan location — the former Kmart in Fresh Meadows, Queens, was said to be swept up by Kohl’s, marking the chain’s first New York City store and probably not the last. Kohl’s prefers to enter a market by opening a cluster of stores simultaneously, not just one. Over the past few years, Kohl’s has stormed into such markets as California, Atlanta and the New York metro area, including Long Island and New Jersey.

“We don’t comment on our real estate plans for competitive reasons,” said a Kohl’s spokeswoman Thursday.

Fresh Meadows Associates, the landlord for the Queens location, could not be reached for comment. Kmart also declined comment.

According to market sources, however, Kmart’s Fresh Meadows location was one of five sites snapped up by Kohl’s at a Kmart bankruptcy court hearing on Monday in Chicago. Court records indicated that the bankruptcy court signed off on its approval of the purchase on Tuesday. The court orders did not detail all the sites purchased by the discounters, or what they paid for them, but some locations were specified. Wal-Mart listed at least seven sites, with two in nearby Connecticut: one in New Haven and the other in Wallingford. The Home Depot order listed nine sites, including one in Syosset, N.Y.

Other sites snapped up by retailers include Penney’s purchase of a Maple Grove, Minn., store for $750,000 and Target Corp.’s purchase of a Houston location for $2.2 million. The Houston site, with the lease dating back to 1994, was originally part of the Venture Stores Inc. portfolio. Kmart acquired the site when it bought 20 Texas locations from Venture in 1997. Those sites were converted to Big Kmarts at a cost of about $600,000 each to renovate. Venture, as reported, filed for Chapter 11 bankruptcy court protection in January 1998, and was liquidated by that summer.

In addition, Florida-based Bealls Department Stores purchased three Kmart sites in Florida: one each in Boynton Beach, for $750,000; Ormond Beach, for $200,000, and Oldsman, for $150,000.

Kohl’s is not the only big-box retailer hunting for locations in the New York area. Space is opening up and landlords are getting creative, trying to lure retailers to the city.

Real estate sources said Home Depot is negotiating space in the former Alexander’s site next to Bloomingdale’s, where H&M plans a store and Bloomberg LLP will open offices.

There’s also a lot of interest in the Kmart site at Penn Station on 34th Street, but Kmart says it won’t leave. Still up for grabs is the Kmart location in Brooklyn, at 8973 Bay Parkway.

As reported, Kmart’s court hearing regarding confirmation of its plan of reorganization was continued through Monday, to give the court and the parties more time to address objections filed by 175 creditors and allow everyone two days off for the religious holidays. Kmart has said that it expects to receive confirmation of its plan, and that the delay would only mean that its exit from bankruptcy court proceedings would be pushed back by one week.

With Kmart planning to shed a total of more than 300 locations, “it’s definitely an opportunity for big-box retailers because Kmart has some very good locations, and at the same time, it’s an easier and faster expansion for Kohl’s,” said Laura Pomerantz, co-principal of PBS Realty Advisors LLC. “Kmart has a lot of locations that are good for their [Kohl’s] kind of customer.” The Fresh Meadows location is one of them, since it’s off-the-mall and in a densely populated, middle- to lower-middle-class community.

As far as Kohl’s expanding rapidly in the city, it wouldn’t be easy, Pomerantz explained. “There are limitations to what the neighborhoods, including SoHo, will accept. There are zoning regulations that protect local businesses from big boxes.”

For Kohl’s and other big boxes, there are several real estate opportunities in the city, even in Manhattan, including Harlem and the Upper East Side. Home Depot and Target also want to enter Manhattan.

According to John Brod, also a co-principal at PBS:

HMV in Harlem, on 125th Street, is looking to get out of its site.

Nearby, off the FDR Drive, Costco is moving in and there could be additional parcels available.

The 20,000-square-foot Staples location on 34th Street by Penn Station is available, and potentially more space could be carved out of the Kmart there, to house a big box.

The former Bradlees on Union Square has been leased to Whole Foods and Forever 21, but there are still two 35,000-square-foot floors on 14th Street and Broadway.

The landlord at the site of the former Alexander’s is currently negotiating with Home Depot for the lower level of the building, which has about 60,000 square feet, and the Third Avenue side of the building, which has about 30,000 square feet.

“Bed, Bath & Beyond is a great example of what a big-box retailer can do vertically,” Brod said, citing its multilevel stores on First and Sixth Avenues in Manhattan.

Jeffrey Paisner, executive managing director at The Lansco Corp., said that Vornado, the landlord for the Alexander’s site and Kmart in Penn Station, “is very aggressive and creative and could do something to shake loose Kmart, but Vornado would have to have someone positioned on the runway to take the space. That’s not an easy thing to do, considering the rents in the city, which don’t necessarily gel with the economic models of big-box retailers.” Paisner noted discounters could also be eyeing the financially troubled FAO Schwarz, and its Fifth Avenue flagship, though FAO intends to stay there, and Target “has been circling but has run up against community opposition on the West Side.”