For the past 10 years, while working for a local Chevy dealership, Jay
Bradley owned a stand-alone big box retail building in Norwalk, Conn. that he inherited from his father. Rents came in like clockwork from Linens ‘n Things and the property was managed by the store's general manager. Everything was fine for Bradley until Linens ‘n Things filed for bankruptcy and vacated the property.
So far this year, there have been 1,362 announced retail chain store closures due to bankruptcy or liquidation, according to NREI’s sister publication Retail Traffic. And another 1,175 store closures have been announced. Although property owners are not collecting rents in most cases, more brokerages are offering new services to preserve the value of these assets until they eventually are leased or sold. Services include cleaning, maintenance, security and repairs.
“One of the things that seems to be happening is that these big boxes are starting to go empty,” says Bob Frankel, senior managing director for New York-based FirstService Williams, which was initially hired to lease Bradley’s vacant building. The dark retail space was the first client for FirstService Williams’ asset preservation division.
With approximately 23 million sq. ft. under management in the Tri State Region that includes New York City, Northern New Jersey, Westchester, N.Y., and Fairfield City, Conn., FirstService decided to apply its property management expertise to empty facilities. The cost is less than $1,500 per month, and the contracts offer month-by-month flexibility.
The fee includes management tasks, ranging from cleanup for releasing to fixing structural and electrical problems, maintaining security and guarding against all potential liabilities. The service includes a 24/7 call desk and a hotline with field engineers.
Barring a sudden and miraculous economic turnaround, it is likely that more such opportunities will come to the forefront as owners seek to preserve the value of their properties. “[These opportunities] are certainly on the increase,” says Sam Delisi, senior managing director for the asset services group for brokerage CB Richard Ellis (CBRE) based in New York.
“We’re probably right now bringing on another nine Circuit City [stores], which would probably bring our current total to about 25,” Delisi explains. “I’m aware of another portfolio of 25 of these [stores] coming to the market.” This year, 567 Circuit City stores were slated for liquidation. The stand-alone buildings are typically 30,000 to 40,000 sq. ft. and in good locations — if not on a prime corner, then certainly nearby.
Delisi works with CBRE’s receivership and restructuring business and heads the retail initiative for asset services. “When we take them over, we’re generally hired as the receiver and we also do the property management, leasing and eventual disposition,” says Delisi.
Like FirstService Williams, CBRE cleans up the property, assesses and makes needed repairs, secures and keeps the property and parking lot safe from vandals and vagrants. During the summer, fans are run on a minimal basis to beat back humidity at the empty buildings. In winter, heat is turned on to prevent freezing pipes. The brokerage also manages a number of vacant Mervyns stores in California.
Karen Raquet, director of client relationship management of brokerage Jones Lang LaSalle, is not a new kid on the block. “We’ve done many receiverships throughout the years, but truthfully the vacant anchor opportunity is a new one for us.”
In February this year, Jones Lang LaSalle was appointed receiver of seven Boscov department stores spread across Pennsylvania and Maryland. The brokerage was recommended by the loan’s servicer, CW Capital, and then approved by the courts in each state. The Boscov store model is typically 250,000 sq. ft. spread over three floors.
While Raquet maintains that the property management function is no different for a vacant space than a leased one, she admits that managing these dark spaces as a receiver does entail additional skill. “The receiver is a whole different aspect because everything you do is in compliance with court orders,” she says. “And every court order is different.”
Tax appeals, for instance, must be done immediately, explains Raquet, given that a municipality is unlikely to offer to lower taxes on an empty building that’s producing no revenue. In addition, unlike managing dark properties for an individual owner, the receiver stays in place until the property sells.
Back in Connecticut, FirstService Williams is preparing to double its portfolio of six dark retail properties, all stand-alone and at least 20,000 sq. ft. How fast does a vacant property typically slip into decline? Once they go dark, cautions Frankel, it’s imperative that property maintenance resume in no less than 60 days.