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Sunday, 05 March 2017 19:55

Brokers confident despite turmoil among some West Michigan retailers

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In a tightening real estate market, West Michigan commercial brokers focusing on the retail segment could soon have some new inventory to lease. Hundreds of thousands of square feet of space is expected to come online in the coming months as Family Christian Stores and MC Sports wind down operations. Despite the financial issues and ongoing changes in the retail landscape, brokers expect the space will remain a hot commodity. In a tightening real estate market, West Michigan commercial brokers focusing on the retail segment could soon have some new inventory to lease. Hundreds of thousands of square feet of space is expected to come online in the coming months as Family Christian Stores and MC Sports wind down operations. Despite the financial issues and ongoing changes in the retail landscape, brokers expect the space will remain a hot commodity. Photo by Katy Batdorff

GRAND RAPIDS — Two stalwart West Michigan retailers are closing up shop, opening up valuable real estate at a time when space is at a premium in the region. 

Those vacancies will come online as Grand Rapids-based MC Sports goes through a Chapter 11 bankruptcy proceeding while it liquidates all of its 68 stores across the Midwest, including more than a dozen in West Michigan. Additionally, by the end of April, Family Christian Stores, which itself emerged from Chapter 11 less than two years ago, is closing all 240 of its stores in 36 states — nine of which are in West Michigan.

While the loss of jobs and companies is always difficult, commercial real estate sources remain confident that the region can build on the significant momentum in the area’s hottest retail corridors to absorb the soon-to-be-empty space. 

It’s unclear just how much space will come online as the brands wind down operations at various retail stores in the coming months. Brokers say Family Christian Stores are generally between 6,000 and 10,000 square feet, and MC Sports locations range from 10,000 to 20,000 square feet. While circumstances will be different at each location, brokers say they anticipate considerable demand for the space. 

“We’re very bullish on retail,” said Rod Alderink, a partner focused on the retail segment at Grand Rapids-based commercial real estate brokerage NAI Wisinski of West Michigan. The closures of MC Sports and Family Christian have “more to do with systemic financial issues … than the general retail climate.” 

Other real estate stakeholders share Alderink’s optimism. 

Dave Denton, vice president for real estate brokerage at Grand Rapids-based Dar Development Inc., said he’s already received a handful of listings for expected vacancies at MC Sports and Family Christian locations. Likewise, some of the spaces have already started to draw interest from unspecified potential users. 

“There’s a lot for retail demand in West Michigan,” Denton said. “In those main corridors, we’re short on inventory. I hate to see local companies move out … but from a retail standpoint, we’ll be backfilled pretty quickly.” 

QUESTIONS REMAIN

Despite some of the grim news surrounding major retailers, whether it’s MC Sports, Family Christian Stores or other legacy brick-and-mortar stores, it’s still unclear how all the closures will shake out in the West Michigan market. 

Brokers contacted for this report said each situation will depend on myriad variables, including location and the different needs of tenants and landlords. In the case of both Family Christian Stores and MC Sports, the companies lease all their retail locations. 

Attempts to reach a variety of landlords for both companies were unsuccessful as this report went to press last week. 

David Blau, a senior attorney focused on commercial landlords at law firm Clark Hill PLC in Birmingham who’s representing some of the landlords for MC Sports, said that many of his clients have been through similar store closings in the past. Generally, most of them have success in finding new tenants, he said. 

To that end, Dar Development’s Denton didn’t name specific potential tenants, but indicated he’s already heard from a variety of users expressing interest in certain affected spaces. In particular, Family Christian Stores’ smaller retail locations could be easier to fill, he said. 

The box stores might need to be split up to accommodate a variety of tenants, or in other cases, existing facilities could be demolished for site redevelopment, according to sources. 

“It can bring heartache,” Denton said of the store closings. “But it can also bring some positive changes as well.” 

CHANGES AHEAD?

As the retail landscape changes significantly nationwide in the era of stiff competition from e-commerce and shifting consumer habits, reports still show considerable demand for new retail space, while acknowledging some major headwinds. 

The region’s most in-demand retail corridors, such as Alpine Avenue and 28th Street SE in Grand Rapids, are experiencing escalating occupancy rates and increasing asking rents, according to the 2017 Economic and Commercial Real Estate Forecast, released earlier this year by the Grand Rapids office of Colliers International Inc.

“In most cases, creativity is key for finding great locations for tenants who demand them,” the forecast noted, adding that in the best locations, asking rents have risen as high as $38 per-square-foot triple-net, meaning that tenants are responsible for all utilities and upkeep. 

Additionally, sources said that new-to-the-region chains such as Chick-fil-A and Trader Joe’s partially are drawn in because of the area’s low unemployment and modestly rising wages. 

But challenges remain, as evidenced by brands like MC Sports, Family Christian and Sears — which is closing its store at Woodland Mall — that have planned their exits. Additionally, in late February, department store J.C. Penney announced it planned to close between 130 and 140 stores in unspecified locations. The company has numerous sites across West Michigan. 

The string of closures led shopping mall owners — including Pennsylvania Real Estate Investment Trust (PREIT), which owns Woodland Mall in Grand Rapids — to consider significant changes in upcoming years. At Woodland Mall, for example, high-end department store Von Maur will take over the spot Sears is vacating, as MiBiz reported in January. 

Jeff Hainer, a research specialist at Colliers International in Grand Rapids, told MiBiz that a speaker at a recent conference he attended compared the current retail landscape to a forest wherein legacy brands are the oldest and tallest trees, and therefore the most vulnerable when high winds come through. 

That’s an analogy that rings true to NAI Wisinski’s Alderink as he looks at the challenges and opportunities stemming from the fallout of brands like MC Sports and Family Christian closing up shop.

“We’re confident that there’s a new generation of retailers that will fill those spaces,” Alderink said. “I think we’re seeing a normal evolution of retail. I remain convinced that backfilling and finding new tenants shouldn’t be that cumbersome. There should be some new or expanding stores in our marketplace.” 

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Nick Manes

Staff writer

nmanes@mibiz.com

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