Bankrupted J.C. Penney is still sitting on a commercial real estate gold mine

Once among the most recognized brands in American retail, J.C. Penney has since become an example of how shifting consumer preferences for online shopping devastated traditional brick-and-mortar department stores.

Over the last 10 years, the department store chain saw its sales gradually decline as shoppers moved to online marketplaces such as Amazon and big box discounters like Walmart and Target. The COVID-19 pandemic, which caused many store locations to close temporarily, proved to be the final nail in the coffin, and the company filed for Chapter 11 bankruptcy in May.

But analysts say J.C. Penney, with its numerous outlets in prime locations, is still sitting on a real estate gold mine – a prospect enticing enough for commercial real estate giants Simon Property Group and Brookfield Property to consider teaming up with brand management firm Authentic Brands Group (ABG), owner of Barneys New York, to launch a joint bid for the bankrupted retailer, according to a CNBC report.

Floris van Dijkum, managing director at Compass Point Research, told CNBC that the redevelopment potential of J.C. Penney’s real estate – with an estimated value of more than $1 billion – is reason enough for the three firms to launch the bid. It would be an even more attractive proposition for Simon Property, the country’s biggest mall operator, because over half of its US malls has a J.C. Penney store as one of its anchors. 

“We believe Simon wants to control the J.C. Penney boxes and land so that it can ultimately redevelop many of these in order to densify and introduce mixed use elements,” van Dijkum told CNBC. “A redevelopment (that would require zoning approvals, capital, and time) could unlock significantly greater value while boosting traffic for the retail.”

Simon Property is no stranger to snapping up struggling retailers: in 2016, it bought apparel company Aeropostale out of bankruptcy, and earlier this year, teamed up with Brookfield and ABG to buy Forever 21.

“The anticipated joint bid by Simon and Brookfield Retail, the second largest owner of US malls, with Authentic Brands for J.C. Penney makes sense from a strategic perspective… as these two landlords could control the redevelopment at some of their best assets,” van Dijkum told CNBC. “We have little insight into the financial aspects at this stage but could see significant value creation potential should mall owners increase control over their most valuable assets and land sites.”