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Big Storefronts Now Housing Big Data

Move By Sears To Convert Former Stores Into Server Warehouses Part of Trend of Filling Empty Big-Boxes with Non-Traditional Tenants
June 19, 2013
One of America's most recognizable bricks-and-mortar retailers will swap out clothes racks for server racks if a new strategy by Sears Holdings Corp. (Nasdaq: SHLD) pans out.

Sears has launched a new business unit, Ubiquity Critical Environments, with the mission of converting some of the more than 330 closed Sears and Kmart stores into facilities for data warehousing, network colocation centers, and business continuity operations.

Ubiquity will be helmed by chief operating officer Sean Farney, who built and managed Microsoft's 120-megawatt, 700,000-square-foot Chicago data center. Most recently, Farney was responsible for building and running the global low-latency, high-frequency trading platform for financial services company Interactive Data's 17 data centers.

Downsizing by big-box retailers continues to exact a toll in the Chicago metro and across the country, according to Property and Portfolio Research (PPR).

Sears, Best Buy and other retailers haven’t finished their store closing/consolidation programs in the Chicago metro, even as Target, Walmart, Ross Dress For Less and chains are continuing to fill existing vacancies or anchor new developments, according to a report by PPR Senior Market Advisor Glen Marker.

Marker noted that a recently announced search for tenants by Sears to take over the leases at eight of its existing locations -- two Sears stores and six Kmarts -- on top of the six local Sears, Kmart, Great Indoor, and Grand Essentials stores it previously announced will close -- are part of a broader effort by the retailer to raise capital.

In total, the volume of closures by publicly traded store chains is expected to be about 50 million square feet in 2013 as closings unwind across the U.S., about the annual national average of the past three years, according to PPR.

For its part, the Sears spin-off will first focus on converting a soon-to-be-shuttered 127,000-square-foot Sears store on East 79th Street in south Chicago into a multi-tenant data center, according to Data Center Knowledge, an industry trade publication.

The effort to convert empty stores into data centers fits into a national trend in which retailers and shopping center owners are seeking non-traditional tenants to fill a ballooning inventory of closed big-box and department stores around the country.

The iconic retailer has taken a number of steps in recent years to oversee the disposition of closed Sears and Kmart stores, which together with operating real estate is the chain's most valuable asset. In 2010, Sears launched SHC Realty as one of the world's largest corporate real estate organizations.

Earlier this year, Sears launched Seritage Realty Trust, LLC as a "nationwide developer of commercial real estate" to help oversee a Sears portfolio containing over 200 properties in 33 states and totals over 18 million square feet.

Among Seritage’s first projects is securing approval of a master plan for a mixed-use redevelopment on 17 acres in downtown St. Paul, MN, anchored by a successful freestanding 50-year-old Sears store. Seritage has also launched a net lease outparcel program in 50 U.S. locations, according to the company’s web site.

Sears also earlier this year hired Oakbrook Terrace, IL-based brokerage Mid-America Real Estate Corp. to find tenants for eight Sears and Kmart stores that are closing in the greater Chicago area.

Sears Holdings further announced in March the hiring of David Lukes as president, real estate development, to oversee its real estate business. Lukes previously served as president/CEO of Mall Properties, Inc., a privately owned $3 billion real estate firm.

Lukes "will lead the company's effort to further develop certain of its real estate assets, including those real estate assets that are no longer in use as retail stores," the company said in a statement.

"We have a very strong real estate team at Sears Holdings and that team will only be stronger with the addition of an executive of David's caliber," said Lou D'Ambrosio, Sears Holdings' chief executive officer and president. "David's hiring allows us to expand our capabilities to include the enhancement and re-development of appropriate properties."

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