Saks' Real Estate Portfolio Emerges as Key Asset in Bankruptcy Battle
Saks Global's valuable real estate holdings could become its most important bargaining tool with lenders. The luxury retail giant filed for Chapter 11 bankruptcy protection this week, just over a year after a debt-heavy merger aimed at creating a unified luxury powerhouse.
Financing Package Provides Breathing Room
The company secured a $1.75 billion financing package to maintain operations during bankruptcy proceedings. This financial lifeline gives Saks time to carefully manage its real estate assets rather than forcing immediate fire-sale closures.
Brandon Isner, head of U.S. retail research at Newmark, emphasized that closing underperforming stores represents a critical survival strategy. "Shutting down unproductive retail space could help ensure the business survives this difficult period," he noted.
Sale-Leaseback Options Offer Liquidity
Real estate experts point to sale-leaseback arrangements as a potential solution for Saks. Matt Weko of JLL Capital Markets explained this approach clearly. "Saks could sell its properties to investors and then lease them back. This provides immediate liquidity while allowing stores to continue operating normally," he said.
The company's portfolio includes approximately 125 stores across 13 million square feet of prime retail space. Saks owns or controls ground leases at 39 of these locations, including prestigious addresses like:
- Fifth Avenue in Manhattan
- Luxury corridors in Beverly Hills, California
- Top-tier malls such as Bal Harbour Shops in Florida
Immediate Steps Include Closing Dark Stores
Court documents reveal Saks Global has requested permission to shutter about four non-operating locations, commonly called "dark stores." A real estate adviser familiar with the situation indicated these properties might sell at significant discounts of 40-50% below their "lit value" when occupied by operating stores.
Bankruptcy experts highlight another pressing challenge. The company must prioritize vendor payments to restore merchandise flow after more than 100 brands paused deliveries over the past year.
Internal Competition and Market Pressures
Saks faces complex competitive dynamics within its own portfolio. The company frequently shares luxury centers with Neiman Marcus, creating internal competition. At Houston's Galleria Mall owned by Simon Property Group, both retailers anchor a complex featuring over 400 stores and numerous luxury brands.
Analysts suggest these co-locations will require careful review and might be among the first properties considered for sale during portfolio evaluation.
The broader competitive landscape presents additional challenges. Luxury brands increasingly favor their own flagship stores over multi-brand retailers like Saks. George Gottl of FutureBrand questioned the current value proposition. "Why would shoppers choose Saks over brand boutiques offering VIP perks and immersive experiences? Multi-brand retail only works when the environment adds clear value," he observed.
Industry-Wide Retail Restructuring
Saks' struggles mirror broader department store challenges. Rival Macy's plans to close about 150 underperforming locations, including its Fulton Street store in Brooklyn, to reduce costs and focus on higher-performing stores.
Isner of Newmark sees potential opportunities in prime locations. "Owners of top-quality centers would welcome reclaiming this space. Converting two-story anchors into split big boxes or mixed-use developments could refresh tenant mixes," he explained, citing examples like Primark and Dick's House of Sport stores planned for Newport Centre, New Jersey.
The bankruptcy filing specifically excludes Saks' flagship Fifth Avenue store, which the company leases from a separate entity holding a $1.25 billion mortgage on the property.
