Early Lease Termination Effort Targets Troubled Retail Categories such as Books, Electronics, Toys and Traditional Department Stores
Shopping center owner DDR Corp. has launched a multi-year proactive lease termination initiative aimed at recapturing high-quality anchor store locations across its portfolio.
Dubbed Project Accelerate, DDR said the goal of the program is to take space from under-performing retailers and make it available to market-share-winning tenants while realizing a mark-to-market rental upside of 30% to 40%.
DDR said it is working with retailers in the books, electronics, toys, office and traditional department store categories that are looking to downsize and regain control of certain locations ahead of the existing lease expiration date.
In a first phase of the program, DDR said it identified 90 anchor locations, representing 3.3 million square feet of prime retail space
that meet its criteria for accretive recapture.
Of those, DDR has finalized terms to recapture 21 locations, representing 550,000 square feet of shopping center space primarily located in Boston, Cleveland, Denver, Orlando, Phoenix, Raleigh and San Antonio.
One of those spaces is at the West Bay Plaza in the Cleveland MSA where DDR terminated an underperforming 90,000-SF lease with Kmart.
"Recapturing below-market leases represents an incremental growth opportunity to upgrade asset-level merchandise mix and NOI growth profiles, while simultaneously expanding redevelopment opportunities that will further enhance the quality of our portfolio," said Paul Freddo, senior executive vice president of leasing and development for DDR.
According to DDR, demand for new store growth from such retailers as Nordstrom Rack, Sprouts Farmers Market, Ulta, Whole Foods, Five Below, HomeGoods, Fresh Market, Marshalls, Trader Joe's, White House Black Market, Gap Factory, Shoe Carnival, PetSmart and Carter's represent a select group of retailers that DDR is talking with about backfilling the recaptured locations.
Although it expects much of the initial space recaptures will occur in 2014, due to typical retailer black-out periods, DDR does not expect the benefits of the remerchandising and mark-to-market opportunities will commence until the second half of 2015.
DDR owns and/or manages 396 value-oriented shopping centers representing 108 million square feet in 39 states and Puerto Rico.