DeSoto Square auction ends with $33.75 million bid

MANATEE -- A buyer offered to take over DeSoto Square mall for $33.75 million at the close of an auction Thursday, but it remains to be seen if a deal will be completed.

Mason Asset Management of Great Neck, N.Y., conducted a three-day online bid for the Bradenton mall ending with the $33.75 million bid. Bids started at $9 million and, while the auction was set to end at 2 p.m. with a $13 million offer, bids started to come in -- bumping up the price until a $33.75 million offer won just before 3:30 p.m. Bidding was extended until no bids were placed.

The auction is non-absolute and Mason Asset can accept or reject the offer, decline a sale or agree to a deal with another buyer. Rockwood Real Estate Advisors in New York represented Mason in the auction, and auction representatives declined comment for this report.

DeSoto Square mall general manger Richard Bedford said he was not informed of Mason Asset's process for announcing a bid winner.

If Mason accepts, that would be an $8.75 million profit from the $25 million the company paid Simon Properties for the mall in 2012.

In the final hours of the auction, Macy's announced Thursday morning it would close the DeSoto Square store. A clearance sale starts Monday and the store could close in late September, according to a company spokeswoman.

The mall's buyer likely will not be disclosed until or if the deal closes. Due diligence documents were submitted ahead of bids, which could speed up a sale.

The mall is 680,271 square feet, but it does not own the Sears property onsite, bringing what was up for bid down to 580,325 square feet.

Its largest anchor is Macy's at 132,208 square feet, and that store now is expected to close in late September. Earlier this year, the mall finally filled the former Dillard's space with a Hudsons Furniture showroom.

The mall is considered a Class B mall with sales per square feet at about $280. That figure fell from $292 per square foot in 2003, according to Mason Asset Management. Class A malls have more than $400 per square foot for in-line tenants.

The DeSoto mall itself has been a moneymaker for Mason Asset, bringing in about $5 million of net operating income. Several individual stores have success in the mall, while others are missing annual sales targets that could allow them to leave.

Closure creates domino effect

Macy's closure could cause other stores to close, thanks to co-tenancy clauses.

These clauses are specific and create various scenarios for how a tenant could end their lease early, sometimes paying a termination fee. In Victoria's Secret's case, if the mall's occupancy drops to 70 per

cent or less of gross leasable area, it can exercise the right to leave. Also, if the mall has fewer than three anchors, the store could leave, according to its lease. Macy's departure could trigger tenants to depart much like Old Navy, FootLocker and others left after Dillard's announced its closure in 2009.

The Victoria's Secret lease also states the mall cannot have certain tenants like Walmart, Bass Pro, Home Depot, Big Lots, car rental businesses, an appliance store in a big box anchor, or else it would leave.

If that worst-case scenario come into place, the mall could be mostly empty in two to three years. The mall already reported having 18 suites vacant despite its 94.6 percent occupancy for in-line space.

If a new owner decides to redevelop the property, they would have the easiest time dealing with tenants for a plan in 2016 and 2017.

More than 40 leases for stores and kiosks have their first expiration in 2016, after 13 leases expire in 2015, including the Dollar Movie theater. A couple of those expiring leases include continued payments from tenants who left the mall early.

Negotiations to re-sign retail tenants typically happen about two years before the expiration, according to retail real estate analysts. Some tenants could continue to operate beyond the expiration of the lease on a pro-rated basis. If all or the majority of the tenants decide to not renew, it could trigger out-clauses contained in leases for other national tenants.

Only about 20 tenants have leases that don't expire until 2017 or beyond.

Some stores can leave because they're not meeting their breakpoint for annual sales. Stores that aren't meeting their benchmark include Aeropostale, Auntie Anne's Pretzels, Bath & Body Works, Charlotte Russe, Claire's, The Finish Line, Footaction, FYE, Gamestop, GNC, Rack Room Shoes, Victoria's Secret and Zale's.

Of those, Aeropostale, Auntie Anne's, Bath & Body, Charlotte Russe, GNC and Victoria's Secret are all opening stores in the Mall at UTC.

When looking at sales per square foot, however, several of those stores have strong sales, with GameStop at $730 per square foot.

Stores exceeding sales targets in the mall include Champs Sports, Littman Jewelers, Journey's. However, as Macy's has proven, success does not preclude a tenant from leaving.

Not all stores losing money can blame the mall. J.C. Penney re-upped its lease this year, but has lost $10 million in sales since 2011, according to mall sales documents. The company struggled across the country after a failed re-imagination of pricing and customer service by former CEO Ron Johnson, who was an Apple executive. After Johnson was fired last year, Penney's closed 33 stores and laid off 2,000 employees earlier this year.

In 2011, J.C. Penney was the mall's strongest tenant, posting sales above Macy's, according to sales records.

The third anchor, Sears, owns its own space and controls its own fate to either continue at DeSoto, remodel or close.

Future uncertain

Local and national real estate experts agree the mall needs work to win back shoppers and tenants.

"It requires cleanup, more security and probably demolishing parts of the project to open it up more," Faith Hope Consolo, chairwoman of the retail group for Douglas Elliman Real Estate in New York, has told the Herald.

Originally built by former San Francisco 49ers owner Eddie DeBartolo in 1973, the mall was relatively stable for 30 years as its ownership transitioned to Simon as part of a DeBartolo Realty Corp.-wide deal in 1996. Simon, under its own transition and reconsideration of its portfolio, dumped DeSoto Square as it let the mall slip into the foreclosure process by the next move in 2012.

Raymond Hayhurst, senior director of capital markets for Cushman & Wakefield, said Thursday's winning bid might be a little rich for a redevelopment, but knowing the winner could change things. A mall like DeSoto has a couple likely options.

"A lot of what's going on in second-tier malls, they're demalling them and converting them into outdoor lifestyle centers or convert them into mixed-use projects," Hayhurst said.

Other experts offered the mall could be reworked to attract the demographics and population that live around the mall now or in one case, turn it into a social services super center.

County Commissioner Michael Gallen, whose district includes the mall, has some hope for DeSoto.

"The mall is within the newly established TIF district to incentivize job growth," Gallen said. "I talked to staff about a year ago, and the property there is very large to do out parcels that could include retail and restaurants that would be a pedestrian-friendly area."

Gallen said he hopes the new owner will seek a consultant and meet with the county, city of Bradenton and the neighborhood to get input on what might be built.

"I don't think whoever owns it now can draw the clients like the new mall has," he said. "I hope they will look in a more creative direction."

Charles Schelle, Herald business reporter, can be reached at 941-745-7095. Follow him on Twitter @ImYourChuck. Reporter Mark Young contributed to this report.

This story was originally published July 31, 2014 at 3:31 PM with the headline "DeSoto Square auction ends with $33.75 million bid."