|Part of J.C. Penney Co. Inc’s turnaround plan includes cashing in on its real estate — and it is sitting on some prime sites for potential redevelopment in the Tampa Bay area.Dallas-based J.C. Penney (NYSE: JCP) filed for Chapter 11 bankruptcy protection on Friday, and part of the retailer’s tentative plan calls for the creation of a real estate investment trust that would collect rent from its stores, Bloomberg reports. J.C. Penney could sell up to a 35 percent stake in the REIT to generate cash if its lenders approve the plan. The retailer said its bankruptcy filing will result in some store closures; it needs to reduce its retail footprint, given the company’s financial performance even before the novel coronavirus pandemic. It currently has 800 stores.
“One of the most immediate priorities is the closure of underperforming and bad space,” said Neil Saunders, managing director of GlobalData Retail. “J.C. Penney is exposed to a high number of weak malls and locations and it needs to quickly cut its losses.”
J.C. Penney’s REIT plan is like a strategy Sears deployed in 2015 when it spun off Seritage Growth Properties. Seritage has moved forward with several redevelopments of Sears’ real estate in the Tampa Bay area. In Clearwater, a portion of Sears at Westfield Countryside was redeveloped to make way for Whole Foods Market Inc. In St. Petersburg, Seritage redeveloped the Sears at Tyrone Square Mall into Dick’s Sporting Goods, PetSmart, Five Below and Hitchcock’s Markets, which took over the former Lucky’s Market space.
J.C. Penney does not own its WestShore Plaza real estate, which is arguably its best property in the Tampa Bay region. Washington Prime Group, the Ohio-based owner of WestShore Plaza, owns the J.C. Penney box. Simon Property Group, the owner of Tyrone Square Mall, also owns J.C. Penney’s real estate at that mall. QIC, which owns the Shops at Wiregrass in Wesley Chapel, also controls J.C. Penney’s anchor box there.
But J.C. Penney does own real estate throughout the region, including the following:
- 150,741-square-foot anchor box on 9.35 acres at Westfield Brandon
- 172,337-square-foot anchor box at Westfield Countryside in Clearwater
- 133,573-square-foot anchor box on 9.37 acres at Westfield Citrus Park
In recent years, restaurant and entertainment concepts have become the go-to businesses to occupy real estate vacated by traditional retailers. But in the wake of the coronavirus pandemic, retail redevelopments have become more complicated. Many food, bar and entertainment concepts face an uncertain financial future and looming bankruptcies. Movie theaters, which have become an anchor at many malls in recent years, have been devastated by the pandemic. J.C. Penney’s three owned properties in the Tampa Bay area are in high traffic areas — areas that are ripe for new types of development, including multifamily, education and medical office space.
Bloomberg reports that J.C. Penney says in court documents that it wants to list shares of its new REIT on a national securities exchange “as soon as reasonably practicable.” But the plans for the REIT are not yet a done deal: The retailer has until July 14 to agree on a plan with its first-lien lenders.
But even without the REIT, it seems like most if not all of J.C. Penney’s real estate will be in play. If it does not come to terms with lenders and get its necessary funding by Aug. 15, it will have to pursue a sale.
There is going to be wave of redevelopment opportunities as our economy changes and consumer behavior changes. Retail stores have and will continue to close due to many consumers preferring to shop online. Most of these locations are prime real estate located in convenient high-traffic areas. The bigger question is what is going to replace these large spaces. What is going to be the highest and best use of these spaces? There is not a universal answer to this question as it will depend on each location. If I were to provide a universal answer, I believe many will be replaced with residential real estate and service-based businesses. COVID-19 has created many uncertainties, and as a result, I do anticipate many of these locations will set vacant for a while. Many developers and companies are going to want to wait and see the lasting impact of COVID-19 on people’s behavior before taking on large scale projects like redeveloping spaces of this size. This is an area I will be watching closely as it will no doubt impact residential real estate values surrounding these locations.