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About Those Leases

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Retailers are facing a tough decision as they suffer through a tough spell. What do you do with the leases you signed already? Do you sell the lease to another retailer? Do you keep paying and operate a losing store? Do you shut the store and keep paying rent? Do you pay lease termination fees?

The Wall Street Journal looks at how different retailers are approaching this issue.

Office Depot Inc. already has decided to pay rent for stores but keep them shuttered. The office-supply retailer signed 40 new leases that begin next year, but it doesn't plan to operate all of the locations.

Part of the problem is that new leases are usually the most expensive to break since they have many years to maturity. Office Depot is likely stuck with the unwanted expansion because retailers negotiate leases about a year in advance.

Office Depot has been here before. In fiscal 2005, the company took a charge of $61 million, including lease-cancellation fees, to close 25 stores and three warehouses. Today, such an outlay would deal a heavy blow to the company, which has leases with varying maturities through 2032. Office Depot's shares are down 86% this year to $1.92 as investors fret about its ability to survive.

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Elaine Misonzhnik

Senior associate editor Elaine Misonzhnik has been writing for National Real Estate Investor since June 2006 and has covered commercial real estate for more than 12 years. She first became...
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