Sears Turns Into Wrong Kind of Anchor for Signature REIT

Investors, it seems, have come to see only the softer side of Sears Holdings Corp.’s bankruptcy. But there are signs that the likely demise of one of the nation’s largest and oldest retailers could be a lot harder on the economy, and in particular on companies in the commercial real estate business, like banks and REITs, than markets are anticipating.

Earlier this month, Bank OZK disappointed investors with an unexpected 20 percent drop in its earnings. A large portion of the drop came from $45 million in losses on two loans, one of which was tied to a mall that has J.C. Penney and Sears as its two anchor tenants. A report earlier this month from S&P Global Ratings noted that Sears still had $14 billion in revenue in the past 12 months and that going-out-of-business sales could drag down profits for nearby retailers, which includes most national chains, given that Sears is in malls across the country. The S&P analysts also said that the Sears bankruptcy would add to the challenges of second-tier malls, where Sears stores represent about 10 percent of square footage and have been longtime tenants. The mall owners will have to spend a considerable amount of money to be able to redevelop those spaces for new tenants, according to the S&P analysts.