A retail portfolio spanning 120 J.C. Penney stores in the United States is getting ready to hit the market and could fetch more than $1 billion in what industry professionals are calling a rare offering for an institutional investor.
Newmark plans to list the 15.86 million-square-foot portfolio in 34 states early next month on behalf of Copper Property CTL Pass Through Trust, the entity formed in the wake of J.C. Penney's 2020 bankruptcy proceedings. The trust was created in 2021 to sell 160 stores and a half-dozen industrial properties to help reimburse the retailer's investors and has completed the sales of 37 stores and six warehouses.
The 120 stores Newmark plans to market are long-term leased to J.C. Penney with the portfolio's first year's net revenue from the existing leases with J.C. Penney expected to total $100 million, according to Newmark's marketing materials. The average store size in the portfolio is 132,000 square feet on an average tract of 8.36 acres, Newmark said in the offering.
"We are marketing this globally," Newmark Managing Director Paul Penman told CoStar News. "Everyone is going to see it, but with the store locations being in 34 states and not just in the gateway markets, I would expect this to attract domestic capital already familiar with J.C. Penney."
A potential new owner for the portfolio would have a "seat at the table," Penman said, when it comes to shaping the future of U.S. retail, with roughly 90 of the stores being adjacent to malls. About 30 stores in the portfolio are located in shopping centers or are free-standing locations, he added.
"The buyer would play an important part of the conversation on what happens to these malls," Penman said.
The portfolio's potential new owners would likely work closely with mall landlords Simon Property Group and Brookfield Property Group that purchased J.C. Penney's retail operating arm through the bankruptcy court in late 2020.
J.C. Penney, with over 650 stores in the United States and Puerto Rico, has a good operating outlook, Penman said, with the stores in the portfolio representing some of its best operating locations since exiting from bankruptcy protection.
The portfolio's rents, ranging from about $2 per square foot to about $9 per square foot, are capped at an annual increase of 2% based on the consumer price index, Penman said. As a net-leased property, he said, J.C. Penney takes care of all carrying costs and is responsible for the real estate's upkeep.
"This is basically a covered land play" with acreage tied to each property without the associated operating costs, Penman said. "There is no carrying costs, and the tenant is in strong financial health. You basically have a parking field that is not full most of the year and you can develop an outparcel. This is strong real estate."
Newmark does not have a price tag on the sale of the portfolio. The 37 stores that have previously been sold through the trust have garnered $497 million, Penman said, but his team doesn't expect the same price per square foot to equate to a larger portfolio sale. Three undisclosed stores are currently under contract, Penman said.
Billion-dollar-plus portfolio
Mike Geisler, managing partner at Venture Commercial, said the portfolio is easily a "billion-dollar-plus portfolio." The would-be buyer would likely need to have deep pockets for the acquisition or be an operating group with equity partners, said Geisler, who is not directly involved with the listing.
"There's a desirable amount of upside without a lot of risk," Geisler told CoStar News, adding that an investor would buy it on the income produced from the existing J.C. Penney leases.
Venture Commercial Vice President Joseph Nuchereno, who is part of the firm's investment sales team specializing in single-tenant, net-leased retail assets, said a new owner could add debt to the real estate portfolio in the coming years to increase yield with retail being a favored asset class.
That retail market sentiment was echoed by Weitzman's Executive Managing Director Bob Young, who spoke to CoStar News while in the thick of the ICSC New York conference on Wednesday, saying that "demand is high and supply is tight" in major markets throughout the United States.
"Any time there is new supply that hits the market, it is being consumed at record levels," Young told CoStar News, adding that he believes the J.C. Penney portfolio is worth more than $1 billion. "This would be a great time for an investor to get control of a lot of property. This is a big, complicated play."