Store closures offer silver lining

DALLAS — Filling the space vacated by hundreds of Blockbuster and Borders stores may seem like a huge challenge for shopping center landlords, but it may not be.

Real estate experts agree that the two recent victims of digital and streaming entertainment had at least one thing going for them: great locations.

And there’s not much retail development on the drawing boards, so empty space isn’t the headache it was for landlords in the last few years, experts say.

Blockbuster stores are mostly in top neighborhood centers and occupy prime corners or end spaces with high visibility. Borders stores, which anchor lifestyle centers in neighborhoods with strong reading demographics, are also big enough to subdivide. That can mean more rent and maintenance fees from new tenants.

Borders closed 200 stores as part of its February bankruptcy. Specialty grocers such as Central Market and Trader Joe’s are eyeing those spaces.

About 1,500 Blockbuster stores closed since the Dallas-based company filed for bankruptcy in September, and about 1,000 closed before that.

Many former Blockbuster stores have already been leased.

A Blockbuster in Watauga, Texas, has become a Panera Bread restaurant and an AT&T store. A Schlotzsky’s deli took over a site in Addison, Texas. Fuzzy’s Taco Shop is in a former Lakewood, Texas, location. A Learning Express toy store and Einstein Bros. Bagels split one in Flower Mound, Texas.

In Fairfield, Conn., a Blockbuster is turning into a 160-seat restaurant, and a Wisconsin store is now an O’Reilly Auto Parts.

“Blockbuster did a great job of picking their locations,” said Sam Kartalis, president of Dallas-based Henry S. Miller Brokerage LLC. “Even a Blockbuster store in a bad center — they always occupy the end-cap space, which is still good.”

Henry S. Miller just represented kidney dialysis center operator Libir LLC, which leased a 7,600-square-foot former Blockbuster in Irving, near Dallas.

Dish Network Corp.’s acquisition of Blockbuster was official last month. Now Dish is renegotiating leases with landlords because its plans include operating Blockbuster stores. At the time of the sale, Blockbuster had 1,700 stores. So far, Dish has taken on almost 400 leases, and the leases have been extended to July 20.

But landlords may not be so willing to lower rents for the longtime tenant, said David Palmer, executive vice president at Dallas-based Cencor Realty Services.

For example, there’s substantial interest from restaurants in Blockbuster stores in several Texas cities, Palmer said. “It’s good-to-great real estate in almost every case.”

Now in many centers, Blockbuster is paying rent in the mid-$20s a square foot, including fees for common areas, taxes and insurance, Palmer said. “If they come in now saying they want $10 because ‘Our revenues don’t allow us to pay that,’ then the landlord says, ‘Well, what’s the market? What’s my space worth?’ ”

Borders stores are generating a lot of interest from specialty food stores, furniture stores, health-related companies and firms looking for office space, said Andy Graiser, co-president of DJM Realty, a New York firm hired to dispose of 200 Borders stores, including 10 in Texas.

“There’s so much more interest with the Borders 25,000- to 30,000-square-foot stores than there was with Circuit City or Linens ’n Things,” Graiser said.

Unfortunately, those spaces came available during the recession. Now landlords have more money to redevelop and subdivide spaces, he said. And more retailers and restaurants are looking for smaller spaces, Graiser said.

Wal-Mart Stores Inc. is testing smaller stores, and J.C. Penney Co.’s new Growth Brands division is rolling out Foundry Big & Tall Supply Co., which it expects to become a 300-store chain. At the same time, some chains, such as Forever 21, are looking for larger spaces, Graiser said.

“I’m more bullish than I was a year ago,” he said. “At the end of the day, public companies have to grow. To do so, they have to go into second-generation space because there isn’t a lot of new development.”

Borders stores vacated in Dallas and Houston won’t have a problem because retailers “are always looking to get into those markets with test stores or expansions,” Kartalis said.