Many mall owners will benefit from the upcoming departures of Hudson’s Bay Company stores from their properties, says a leading commercial real estate industry analyst.

Long-term, low-rent Bay leases have weighed down mall revenues while taking up large floor plates for decades, said Robert Santilli, director of Altus Group’s valuation advisory business in Canada, told Connect in an interview. As the Bay departs, mall values could increase through re-leasing and, potentially, redevelopment projects.

“In some cases, those Bay stores can be broken up and re-leased to tenants at a higher per-square-foot rate,” he said.

“And in some cases, the box itself could be torn down and the land used for density for another purpose, such as multi-family.”

All Bay stores and Saks-branded outlets are in the process of being liquidated and closed after Canada’s oldest retailer filed for creditor protection in March. Court-appointed monitor Alvarez & Marsal is co-ordinating the sale of leases and assets.

A total of 18 parties have formally expressed interest in acquiring 65 Bay leases. Unsold leases are expected to revert to landlords.

Many mall owners and operators, such as RioCan REIT are anticipating short-term revenue declines as the stores become vacant.

But Santilli said the mall owners stand to gain eventually.

“The decline of the Bay over the last decade, decade and a half, has really reduced its draw to the centre, so there haven’t been as many people going to the Bay,” he said. “So, the Bay no longer being there, isn’t going to have as big of as big of an impact on foot traffic as it would have had 10, 15, 20 years ago.”

Santilli noted that the Bay has capitalized on initial low rents under long-term leases that were renewed without requiring large rate increases.

“The Bay was an anchor, sometimes a seat tenant that landlords wanted to secure in these centres, so the Bay was able to negotiate fixed rents several decades ago,” he said. “That is very low in today’s environment, significantly less, in some cases, than what other retailers are paying in the same mall.”

(A seat, or sitting, tenant refers to a tenant that can not be forced to leave a space.)

Although the Bay took up large spaces, they spelled a “disproportionately small” percentage of revenue for mall owners, he added.

“So, it doesn’t surprise me that there are a number of groups that have stepped up to to purchase some of those leases,” said Santilli.

He noted that some stores are in “great locations” and “very attractive financially.”

“I expect a good number of them would be be sold,” he said.

Pictured: Hudson’s Bay store in Scarborough, Ont.

Photo: Shutterstock

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