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Watch List: Delinquent Sears, Kmart, JCPenney Retail Properties

November 28, 2012
In this week’s Watch List, CoStar examined CMBS loans for properties in which two of the largest three tenants were either a Sears, Kmart or JCPenney anchor. All three retailers have Fitch Ratings of either B or CCC with negative outlooks.

We identified 91 CMBS loans securitized before 2010 that were backed by such properties. The loans are delinquent or were not paid off at maturity on 22 of the 91 properties backing the loans, or 24%.


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Six of the properties are real estate owned and two more were in the process of foreclosure.

In addition, the borrowers had filed for bankruptcy protection on six of the properties; the loans were current on each of those properties.

The current loan balance on the 91 properties is $5.67 billion; the original loan balance was $6.33 billion.

On properties on which the loan is current, the loan-to-value averages 77%; on properties on which the loan is delinquent, the loan to value averages 189%.

Sears Holdings, which includes Kmart, has been scaling back its real estate footprint dramatically. It currently owns more than 200 million square feet of real estate and leases about twice that amount. In the past year, the venerable retailer has been transforming itself into a more nimble, less asset-intensive business. It has reduced its fixed cost structure by more than $500 million for the full year; it split off its Sears Hometown and Outlet stores; it has sold 14 real estate properties, generating $440 million in proceeds; and it has cut $1 billion from its lease costs since 2010. Sears has said it is in the renewal period for most of its leases and is using the opportunity to exit marginally performing stores.

J.C. Penney is taking a far different approach to its makeover by looking to create boutique “shops” within its stores. The retailer has about 1,100 stores with 111 million square feet of space. In partnering with such brands as Joe Fresh, Casa Bella, Dockers, Hagger, Martha Stewart, Michael Graves, Jonathan Adler and BODUM, Disney, Carters, Giggle and Sugar Shack, JCPenney plans to build out 63 million square feet in 2013 for the new store design.

Under this approach, JCPenney is comparing itself more to real estate landlords than other department stores.

“Let’s look at the large mall owners in United States. There are four; Simon, General Growth, Macerich and Taubman,” Ron Johnson, CEO of JCPenney told analysts this past month. “Simon, the largest, has 221 shopping centers they operate, their total square footage in the mall including the anchors (and ) the common area, is 188 million. They have 88 million square feet in specialty stores. GGP, the second largest, has 61 million square feet in specialty store space.”

“Within 36 months, the new JCP will have 64 million square feet of space built out into specialty stores from the kind of brands you find in the mall,” Johnson continued.

JCPenney also has a growth strategy. It expects to start opening stores in 2015 if the new shop model proves out.

“There is a lot of growth opportunity for us,” Johnson said. “But we have to prove our model."

Johnson said he believes JCPenney can eventually be bigger than Simon Property as it adds stores, and acknowledged that it was challenging for investors and analysts to properly value the retailer.

"How do you value something like this, are you owning the old JCPenney, are you owning JCP which is a start-up with pretty dramatic economic potential? Now, Simon is valued at $72 billion today. General Growth is at $33.8 million. Now, we are currently in the same business, and we are valued at $7 billion, interesting.”


WL11-29

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Property NameAddressNet Rentable Square FeetCur. Bal.Payment StatusMaturity DateLargest TenantsCMBS; Special Servicer

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Montclair Plaza5060 Montclair Plaza Lane, Montclair, CA875,085$190,000,000Nonperf. matured balloon11/15/2012Macy's, JCPenney, SearsWach 2006-C28; CWCapital

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Northwest Arkansas Mall4201 N. Shiloh Drive, Fayetteville, AR589,038$125,600,00090+ days delinq.01/11/2017JCPenney, Sears, Abercombie & FitchCiti 2007-CD4; CWCapital

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Silver City Galleria2 Galleria Mall Drive, Taunton, MA714,898$125,543,219Nonperf. matured balloon11/15/2012Macys, JCPenney, SearsJPM 2005-LDP4; C-III

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Granite Run Mall1067 W. Baltimore Pike, Media, PA691,966$114,325,24390+ days delinq.06/10/2016Boscovs, Sears, JCPenneyCOMM 2006-C7; CWCapital

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University Mall155 Dorset St., South Burlington, VT609,493$92,000,000Less than 30 days delinq.04/15/2017Sears, Kohls, JCPenneyLB 2007-C3; LNR Partners

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Eastpoint Mall7839 Eastpoint Mall, Baltimore, MD844,175$91,289,62090+ days delinq.02/15/2016JCPenney, Sears, Value City FurnitureLB-UBS 2006-C3; LNR Partners

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Moreno Valley Mall22500 Town Circle, Moreno Valley, CA472,844$84,368,075Nonperf. matured balloon12/10/2012Macys, JCPenney, SearsCiti 2007-C6; CWCapital

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Hutchinson Mall1500 E. 11th St., Hutchinson, KS441,963$56,793,342Less than 30 days delinq.10/10/2016Sears, JCPenney, Crown Cinema Corp.GS 2006-GG8; CWCapital

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Golden East Crossing1100 N. Wesleyan Blvd., Rocky Mount, NC461,699$48,700,05060-89 days delinq.02/12/2017Sears, JCPenney, Ross Dress For LessJPM 2007-CIBC18; C-III

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Eagle Ridge Mall451 Eagle Ridge Drive, Lake Wales, FL508,976$46,662,59890+ days delinq.11/15/2012Sears, Dillard's, JCPenneyWach 2005-C22; CWCapital

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Lakeview Square Mall5775 Beckley Road, Battle Creek, MI254,880$40,297,947Nonperf. matured balloon12/10/2012Sears, Macy's, JCPenneyCOMM 2006-C7; CWCapital

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Ashtabula Mall3315 N. Ridge Road East, Ashtabula, OH754,882$39,941,49690+ days delinq.09/12/2017Kmart, Dillard's, SearsMS 2007-IQ16; C-III

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Fort Henry Mall2101 Fort Henry Drive, Kingsport, TN534,020$39,500,000Nonperf. matured balloon11/12/2012Belk Inc, Sears, JCPenneyML-CFC 2007-5; CWCapital

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Crossroads Center2060 Crossroads Blvd., Waterloo, IA699,912$39,358,14130-59 days delinq.10/15/2016Sears, Dillard's, JCPenneyJPM 2006-LDP9; LNR Partners

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Laurel MallRoute 93 & Airport Road, Hazelton, PA562,013$37,411,89430-59 days delinq.01/11/2017Boscov's, Kmart, JCPenneyBS 2007-PWR15; C-III

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Diamond Run MallOne Route 7 South (at Route 4), Rutland, VT383,987$37,400,00090+ days delinq.09/10/2017Kmart, Sears, JCPenneyGCC 2007-GG11; LNR Partners

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The Mall at Yuba City1215 Colusa Ave., Yuba City, CA305,887$33,534,528Less than 30 days delinq.10/15/2014Sears, Forever 21, JCPenneyCSFB 2005-C1; LNR Partners

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Manhattan Town Center100 Manhattan Town Center, Manhattan, KS320,832$29,223,520Less than 30 days delinq.03/15/2015Dilliard's, Sears Roebuck And C, JCPenneyCSFB 2005-C2; CWCapital

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Northfield Square Mall1600 N. State Route 50, Bourbonnais, IL381,877$26,116,827Less than 30 days delinq.02/15/2014Sears, Kimven Ii, JCPenneyCSFB 2004-C1; CWCapital

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Aiken Mall2441 Whiskey Road, Aiken, SC287,908$21,000,00090+ days delinq.03/11/2017Belk's, Sears, JCPenneyBS 2007-PWR15; C-III

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Kandi Mall1605 S. First St., Willmar, MN,452,381$13,947,589Perf. matured balloon11/15/2012Herberger's, Kmart, JCPenneyCobalt 2006-C1; CWCapital

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Westdale Plaza615 - 625 State Road 136, Baraboo, WI173,529$6,255,38230-59 days delinq.07/15/2017Kmart, Pierce Super Markets, JCPenneyLB-UBS 2007-C6; Midland



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