Toys “R” Us has closed around 800 stores this year, more than any other U.S. retailer. Many of these closed properties have become hot commodities on the open market. The toy retailer in March moved to liquidate all its U.S. holdings after a failed restructuring. Landlords, discount merchants and other retailers have gobbled up the vacated properties during the last few months. Sales include
owned properties and leases, and some tenants have already moved in.
Toys “R” Us properties have generated greater demand than other recent retail bankruptcies , like Hhgregg Inc. and Bon-Ton Stores Inc. , in part because Toys “R” Us buildings have longer leases with rents considered cheap by today’s standards. “Many Toys ‘R’ Us leases have significant remaining term at rents that are well below market,” said real-estate research firm Green Street Advisors in a recent note.
There is also strong demand for the former toy-store properties because their variety of sizes and configurations make them suitable for everything from health-care operators to auto dealers.
Emilio Amendola, co-president of brokerage A&G Realty Partners, handled the sale of 567 Toys “R” Us sites and sold 209 of them during the auctions. “It’s a great showing,” he said. “If you sold 10%, you’d be dancing in the streets.”
Ashley HomeStore opened at a former Toys “R” Us store at Millenia Plaza in Orlando, Fla., while Ollie’s Bargain Outlet Holdings last month opened its 300th store at a former Toys “R” Us site in Glen Burnie, Md. The retailer won a total of 18 sites, a mix of property purchases and leases across the Southeast and the Midwest regions. “Many of these sites are very desirable,” said Mark Butler, president and chief executive officer of Ollie’s. He said the former toy stores were located near highways where Ollie’s wanted a presence, and he liked that the stores are around 31,000 square feet to 46,000 square feet, the right size his brand needed.
Other failed retailers have struggled to unload their properties. Sports Authority, which filed for bankruptcy in 2016 and closed all of its 450 stores, took much longer to sell its stores. Only about a third of the Sports Authority stores were taken after 18 months, though demand picked up later, according to Green Street. Not all Toys “R” Us sites have moved. Some drew bids too low to appease creditors, and some didn’t secure any bids at all. At least 268 store leases have been rejected, said Mr. Amendola.
Landlords say they save marketing and site-improvement expenses when retailers buy Toys “R” Us leases.
But since the landlords can’t determine which retailer wins the bid, they run the risk that the store goes to a company that is a direct competitor to an existing tenant. “You want your tenants to work well together,” said California-based property developer Sandy Sigal, whose company NewMark Merrill outbid other retailers for the two Toys “R” Us sites in its portfolio.