Analysis: Blockbuster bankruptcy no surprise to landlords

NEW YORK (Reuters) - Blockbuster Inc’s bankruptcy filing is more bad news for landlords who already are seeing the disappearance of retailers of rental movies, books and music displaced by technological revolutions.

Blockbuster filed for Chapter 11 bankruptcy protection on Thursday, throwing the future of potentially hundreds of its stores in doubt. [nSGE68M0E6]

Store closings -- on top of bankruptcies of other tenants, such as furniture store Levitz -- could hurt strip mall landlords, as well as their lenders.

But some landlords who saw it coming and have high quality malls in good locations will benefit from this as they lease stores to better capitalized more resilient retailers.

“This is not a surprise,” said Josh Podell, president Podell Real Estate Advisors LLC, which helps retailers find store locations.

“(Landlords) had a long time to market these spaces. The ones that have been proactive are going to end up in a good position because right now there are banks and drug stores looking to open everywhere.”

Blockbuster, which had 3,425 U.S. stores as of July 4, has some very desirable locations, Podell added.

Many of the stores are free standing buildings located in front of the shopping center, sites that others, such as restaurant chains, may want.

Landlords with weaker properties in soft economic markets such as sections of Michigan and Nevada may not be able to re-lease their stores so fast and it could hurt other tenants.

Blockbuster stores are spread throughout tens if not hundreds of public and privately held real estate companies. Of the publicly held companies, Regency Centers Corp, Equity One Inc and Weingarten Realty Investors receive a greater percentage of their rent from Blockbuster, although it accounts for no more than 1.4 percent of any of their revenue, according to JPMorgan analysts.

Those landlords prepared for the bankruptcy and set aside funds for bad debt, said Jeung Hyun, portfolio manager with Adelante Capital Management, which has $2.5 billion of assets under management. His firm holds shares of Regency.

“We’re not that concerned about it,” he said.

There also may be reverberations in the commercial mortgage-backed securities market, where Blockbuster is a large tenant in 611 properties with $3.8 billion worth of mortgages, according to ratings agency Realpoint LLC.

Blockbuster is a tenant in eight Centro Retail Group properties whose mortgages back a JPMorgan deal, one of the few CMBS offerings this year. One store was already closed. Rents generated by the other seven account for 0.7 percent of the rents of the entire pool of 72 properties in the CMBS trust.

Blockbuster’s bankruptcy came on the heels of smaller rival Movie Gallery Inc, which filed in February.

Both followed the old-school format of big stores that offer shoppers movie and television selections, first as videos then as DVDs. But they found themselves unable to compete against similar offerings from kiosk-based retailers and those offering movies on demand on computers and television.


Video stores, once big draws in strip malls, are not the only media retailers losing consumers to new technologies.

That has spelled trouble for booksellers, which are also shuttering stores as they grapple with competition from downloadable books via Inc’s Kindle and Apple Inc’s iPad.

“The future of retailers of books appears to be going the direction of DVDs, video retailers or the music industry,” Green Street Advisors analyst Cedrik Lachance said. “It appears that books will follow in that direction but it will be more slowly.”

But technology companies such as Apple have also been a boon for retailers. William Taubman, chief operating officer of mall owner Taubman Centers, said Apple’s iPad sales pushed up sales of the entire mall sector when the device made its debut in April.

Try doing that with the latest best seller. Barnes & Noble Inc, with 720 stores, said last month it would evaluate strategic alternatives that could lead to store closings in the near future and smaller ones down the road.

Borders Group Inc has also been wrestling with falling sales and competition from electronic books.

“It takes a while for obsolete technology to go out of business,” Hyun added.

Barnes & Noble did not return calls. Borders declined to comment.

Reporting by Ilaina Jonas; editing by Andre Grenon