Landlords are bracing for Target Corp.'s possible sale of Marshall Field's and Mervyn's, which could bring the retailer a total of $4 billion. It could also bring some mall owners headaches and others, opportunities.

Closing Mervyn's may have some landlords celebrating, says Atlanta-based Bernie Haddigan, national director of Marcus & Millichap's retail unit. “In theory you can enhance your earnings by upgrading the property and putting a better tenant in there.”

But some mall managers don't see it that way. “There isn't an influx of replacement tenants into Colorado,” worries Kenton Anderson, general manager at Dreiseszun & Morgan's Westminster Mall in Westminster, Colo. Mervyn's is one of five remaining anchors at Westminster, which is still looking for a sixth anchor to fill space Ward's abandoned in 2001.

While Mervyn's will likely be sold piecemeal, Marshall Field's, is expected to sell as a package. Its 62 stores in eight Midwestern states may get a long look from May, Federated and possibly Sears, say analysts. About 15 years ago, Target outbid May for Field's, and UBS analyst Linda Kristiansen says May is still interested in the chain given its proximity to Famous Barr and Lord & Taylor stores in Illinois and Michigan.

The bigger question is what to do with the Mervyn's sites, which average 80,000 square feet. Kurt Barnard, president of Retail Forecasting LLC in Upper Montclair, N.J., calls some Mervyn's stores “very good locations,” but adds that the size has to be just right for alternative uses. “It's difficult to predict what will become of those sites,” he says. Target could convert some into its own brand, though the typical Mervyn's, at 80,000 square feet is much smaller than the Target and SuperTarget prototypes, which vary from 120,000 square feet to 175,000 square feet.

Kohl's is considered a good bet for some southwest Mervyn's locations — but Anderson says, Kohl's “doesn't have much interest in going into enclosed mall locations” such as Westminster.

REIT EXPOSURE VARIES

Among landlords, Macerich Co. is most exposed, with 9.4 percent of its portfolio leased to Target's wayward divisions — 30 stores and 2.9 million square feet, according to a Citigroup Smith Barney report. Macerich doesn't disclose its revenue from those leases, but big retailers pay low rates and Citigroup Smith Barney thinks Target's chains represent less than 1 percent of Macerich revenue.

General Growth leases just 3.4 percent of its portfolio to Target's two department store chains; Taubman Centers 3.3 percent; CBL & Associates 3.2 percent and other REITs still less.

Some mall managers are putting their best face forward on the news of a possible sale. Dan Engelhard, senior manager at Macerich's Kitsap mall, says he isn't troubled either. “I've got to believe that based on the success of the Mervyn's at Kitsap and the success of the Target store across the street, there are no plans to change the lineup here.”

When Target said in March it hired Goldman Sachs to review “strategic alternatives,” analysts weren't surprised. “We've been clamoring for them to do this for 10 years,” says Mark Mandel, senior retail analyst with Blaylock & Partners LP in New York. “Taking out some unproductive space…should benefit the remaining players.”

Target's namesake chain has grown rapidly in five years to 1,249 stores in 47 states. During that time, Mervyn's share of company-wide sales dropped to 7 percent from 13 percent and its operating profits fell to 5 percent from 11 percent. Combined 2003 earnings at Marshall Field's and Mervyn's were $267 million, off sharply from $476 million in 2002.

Mervyn's is in 14 states from Michigan west, but California dominates the chain with 124 of the 266 stores. Texas is second at 42. Mervyn's locations, 59 percent owned by Target.

Many Mervyn's “never impressed me as being in the right store locations,” says Britt Beemer, chairman of America's Research Group Ltd., Charleston, S.C. “Never fall in love with your real estate.”