Mall Owners May Acquire JCPenney

Simon Property Group and Brookfield Property Partners Team Up

Simon Property Group (SPG) and Brookfield Property Partners (BPY), two large US mall owners, are looking at buying JCPenney. Simon’s malls are home to 63 JCPenney locations and Brookfield’s malls contain 99.

JCPenney filed for bankruptcy in May. The two mall owners have an incentive to keep their anchor tenant afloat for several reasons. Given the uncertainty of the retail industry right now, if a JCPenney moves out of a mall, filling such a large amount of square footage would be extremely difficult.

Additionally, mall owners have to be mindful of co-tenancy clauses. These clauses state that if enough space in a mall is empty for more than 18 months, other, smaller tenants have the option to terminate their leases with no penalty.

Past Acquisitions

Brookfield and Simon have collaborated to buy retail chains before. In 2016, the mall owners acquired apparel company, Aéropostale Inc.

In February, the two also stepped in to purchase fast fashion chain Forever 21 for $81 million after it filed for bankruptcy. During the third quarter of 2019, Forever 21 stores occupied 1.5 million square feet of Simon Property’s malls, making it one of the company’s top ten largest tenants. Brookfield also houses a large number of Forever 21 locations. Keeping the chain afloat was beneficial for both mall owners.

The Future of Mall Culture

The future of brick-and-mortar stores is uncertain. Many retailers poured massive amounts of capital into online operations during the pandemic with no plans to scale back, betting that shoppers will keep up the habits they formed during lockdowns. UBS analysts predict roughly 100,000 physical store locations will close in the US by 2025.

However, some retailers are more optimistic about the future of the in-person shopping experience, believing that people will be hungry for human connection and normalcy when the pandemic subsides. In fact, some analysts speculate that Amazon, the online shopping giant, might acquire Macy’s (M), a pillar of the traditional retail market.

Most retail leaders view Brookfield and Simon’s acquisition of Aeropostale as a success and believe buying JCPenney could also be profitable for the pair. The two companies are committed not just to saving individual stores, but to protecting the ecosystem and culture of malls. The deal between the mall owners and JCPenney has not been finalized yet, but investors will be eager to see how it turns out and what that could mean for the future of retail.

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