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A Burlington and a Bed Bath & Beyond store.
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locations across America will soon be replaced by Burlington Stores outposts and a range of other businesses, after the failed home goods retailer auctioned off its leases as part of its bankruptcy proceedings, court records show.
The doomed big-box store selected bidders for 109 of its leases after a Monday auction. Off-price giant Burlington agreed to take over 44 of the locations for $12 million, the largest share of the leases, records filed late Tuesday show.
Burlington secured six more leases for $1.53 million outside the auction process, bringing the total number of locations to 50 for $13.53 million, records show.
Many of the locations are considered "top notch," said Bill Read, executive vice president of commercial real estate firm Retail Specialists. Bed Bath's lease auction provided retailers in growth mode an opportunity to snag space in prime locations amid a dearth of quality commercial real estate.
"In aggregate, the Bed Bath & Beyond locations were some of the best that I've seen become available. They're usually in large community centers with Target as an anchor and multiple other desirable anchor tenants in the shopping center," Read told CNBC.
"These are generally in well-established, mature markets that have a proven track record of generating high sales," he continued.
Several other retailers snatched up the leases. Here's a list of the top winners:
- Burlington Coat Factory: 50 leases for a total price of $13.53 million.
- Michael's: Nine leases for $2.55 million.
- Haverty: Four leases for $468,334.
The other winners include grocers, premium furniture stores and discounters. Macy's paid $1.2 million for a lease in ritzy Winter Park, Florida, for a potential Bloomingdale's location, and Barnes & Noble secured a lease in Concord, North Carolina, for $129,015.
Landlords apart from those companies won 37 of the leases, the next-largest portion after Burlington. Those landlords can now find their own tenants and potentially get a higher rent price than they'd be able to within the auction process.
The leases are for both Bed Bath & Beyond and Buy Buy Baby locations. Leases for the Buy Buy Baby outposts could be clawed back depending on what happens at an auction for the chain's assets, Bed Bath & Beyond said in a court filing.
The leases sold are for stores that range in size from 14,000 square feet all the way to 92,000 square feet.
Bed Bath & Beyond raked in $24.41 million from the lease auction. A portion of those proceeds will likely go to unpaid rents at the locations and the rest will go to Bed Bath & Beyond to pay the retailer's many creditors.
When Bed Bath & Beyond filed for bankruptcy in late April, the retailer had 468 leases to its name, and 153 of them were brought to auction earlier this week, records show. Successful bids went through for only 109 of them.
The retailer had said in court filings that another wave of lease auctions could take place. It is unclear if that process is underway or what will happen to the additional leases that weren't auctioned off this week.
Retail bankruptcies and off-price expansion
The influx of available stores comes as vacancy rates for shopping centers fell to 5.6% in the first quarter of this year, the lowest level since commercial real estate firm Cushman & Wakefield began tracking in 2007.
The lack of available retail space can hinder companies looking to expand. But retail bankruptcies can provide a unique opportunity to snatch space they couldn't otherwise access.
When Burlington reported earnings for the three months that ended April 29, the company noted it planned to open 70 to 80 net new stores in fiscal 2023. It aimed to open even more in the coming years.
During a call with analysts, CEO Michael O'Sullivan said the company had its eye on "retail bankruptcies."
"We think these bankruptcies are likely to have a significant impact on the availability of attractive new store locations … we're confident that these bankruptcies will strengthen our new store pipeline," said O'Sullivan.
"We hope in 2024 and 2025, some of the availability that we're seeing from retail bankruptcies will give us the opportunity to open more," he added.
Burlington's decision to buy Bed Bath & Beyond's leases wasn't its first foray into bankruptcy-run lease auctions, the chief executive said on the call.
"We have a very strong real estate team that has a lot of experience dealing with retail bankruptcies. Many of our most successful and productive stores today were once upon a time Circuit City, Toys R Us, Sports Authority, Linens 'N Things," said O'Sullivan, rattling off a series of other failed retailers that came before Bed Bath & Beyond.
"Some of our best stores were created from carved-up Kmart or Sears locations," he added.
Read, the executive vice president with Retail Specialists, said it's "no surprise" Burlington was the top bidder for Bed Bath & Beyond's leases.
"Burlington is in aggressive growth mode, these are fantastic locations and they're getting a lot of value for their dollar," Read said. "Companies like Ross and TJX already have enough stores in their fleet that they didn't have to be as aggressive in an auction to get new stores, but it's perfectly reasonable for Burlington to be aggressive to reach their store count desires."
Read added, "They're getting reasonable rents, they're getting great locations, they're getting great co-tenancy and they'd probably be in a bidding war with other retailers at higher rents for these locations if it was outside of an auction."
