But rents have risen in the best locations and a bankruptcy like Sears poses an opportunity for landlords to refresh their properties with new or better tenants, provided they win control of the sites during Chapter 11, which can be complicated.
Leases with new tenants could easily double or triple the rent Sears or Kmart now pay, the REITs say. Kmart merged with Sears in a 2005 deal.
A Kmart that was demolished in Staten Island, New York, will result in rents 727 percent higher when the new site opens with new tenants in 2020, Kimco Realty Corp said in a statement Monday, a sign of the upside the bankruptcy offers.
"It's not been a surprise but it's been frustrating that it's taken so long," David Bujnicki, in charge of investor relations and strategy at Kimco, said in an interview of the long-expected bankruptcy.
Kimco has been waiting to "recapture" Sears locations to either put in new tenants and lift rents to market prices or to start a new redevelopment within the shopping center itself, Bujnicki said, noting that Sears' average rent was $5.25 per square foot, the lowest among Kimco's top 50 tenants. The average tenant pays $15.95 a square foot.
"The economic impact is actually a positive, even though it feels hard to believe that it would be, but it is," said Eric Rothman, a portfolio manager at CenterSquare Investment Management.