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Loss of Bon-Ton leaves area malls with more empty space to fill

It won't be easy to replace Bon-Ton.

That is especially true at local shopping malls and plazas that already are struggling as more shoppers stay home and buy online.

And it won't be quick, either.

It takes nine months to two years to fill an empty department store, according to Jones Lang Lasalle, a commercial real estate solutions firm.

Just look at McKinley Mall in Hamburg. Macy's closed two anchor-sized stores in the only enclosed mall in the Southtowns more than two years ago. Both stores are still empty. And now, an equally cavernous Bon-Ton store will join them by the end of August.

"Stores are becoming virtual, so the physical dimension of malls is contracting," said Debabrata Talukdar, a marketing professor at the University at Buffalo School of Management.

In all, the shutdown of Bon-Ton's eight Western New York stores will leave more than three-quarters of a million square feet of retail space empty.

And the empty Bon-Ton space is going into a market that's already flooded with empty stores as malls and plazas scramble to fill gaping holes left by downsizing department stores such as Sears, J.C. Penney and Macy's, which have struggled to stay relevant in today's increasingly online retail world.

Most of that space has been vacated at enclosed shopping malls, kicking an industry already downed by the one-two punch of changing consumer preferences and online shopping's effects on the brick-and-mortar landscape.

Filling those vacancies has proved a daunting challenge in Western New York.

In the old days, there were plenty of other large department stores waiting to absorb the market share of any that closed. The likes of Wm. Hengerer Co., Hens and Kelly and L.L. Berger came and went, but other retailers usually stepped in to take over their space fairly quickly.

Not anymore. There just aren't many retailers opening stores of that size today. The ones that are, such as Walmart and Home Depot, tend not to locate in malls, opting instead for free-standing, open-air strip plazas, which shoppers increasingly prefer. The average inline – or smaller – mall store couldn't hope to fill even a quarter of that space.

Bon-Ton announces official closing date

So malls are looking for creative ways to rethink uses for their big, empty spaces.

In Hamburg, the town supervisor is trying to talk the McKinley Mall into filling space with some sort of sports facility that could serve town residents. It would fill a community need the town has been trying to address, keep the mall on the tax rolls, and shelter residents against a "significant blow to morale," according to Supervisor James M. Shaw.

Eastern Hills Mall is planning a major redevelopment, working with Uniland Development Co. to more or less bulldoze the mall and replace it with a town center, a mixed-use concept that incorporates residential, commercial and retail spaces.

Elsewhere, malls are filling former department stores with offices, grocery stores, even medical centers.

But such radical transformations are expensive and can take years to accomplish from conception to completion.

Stores we loved and miss

Here's where Buffalo Niagara's malls stand in the current climate that sees some anchor stores in trouble:

McKinley Mall 

In addition to Bon-Ton and the two Macy's stores, McKinley Mall also lost a highly visible Ulta Beauty store at the front of the mall a month ago. The loss of Bon-Ton will put the mall's occupancy at 78 percent – below the 80 percent benchmark analysts use when considering a mall's financial risk. Analysts already classified McKinley as at risk of "imminent monetary default" after one of its loans went to a special servicer earlier this month,  and that was before the Bon-Ton announcement.

Bon-Ton owes more than $172,000 in rent to the McKinley Mall's owner, Stoltz Management of Delaware. While Bon-Ton has indicated that it will pay the back rent as part of a sale, the mall's owners have objected to the proposed payment because it doesn't cover rent that accrues between the end of March and the date that the sale is completed.

Now that McKinley will lose its second anchor, other retail tenants may be able to invoke co-tenancy clauses in their contracts, allowing them to renegotiate their leases or terminate them outright. With occupancy and foot traffic already on the decline, that could kickstart a negative domino effect.

And it could get much worse. The mall is home to J.C. Penney and Sears stores, but both struggling department store chains have been downsizing locations.

The former Macy's store spaces were purchased by Benderson Development, which said it does not yet have any plans for the property.

Boulevard Mall

The region's oldest enclosed mall is in tough shape, too. It lost its Sears and Macy's Men's stores, along with more than a dozen other inline tenants. Benderson bought the former Macy's Men's property and has not yet announced plans for the spot. In December, the mall's owner defaulted on a loan and left the mall in the ownership of its loan servicer, LNR Partners.

In the last 10 years, the mall's appraised value has declined by two-thirds, going from $159.5 million in 2007 to $54.9 million in December. Its occupancy was last reported as 78 percent in June, below that red-line vacancy danger zone. Its cash flow has declined by 27 percent since 2007 to $8.3 million in 2016, according to Morningstar Credit Ratings.

The mall has tried to keep occupancy up by filling spaces with local inline stores and pop-ups, but that type of tenant usually pays less than a national tenant, draws less traffic and does fewer sales.

"It's those inline tenants that really pay the bills," said Edward Dittmer, a CMBS analyst with Morningstar Credit Ratings.

Walden Galleria

The Walden Galleria lost its Sears department store last year, but the loss of an anchor affects the region's premier shopping center differently than it would any other local mall. In fact, getting the struggling Sears brand out of prime real estate at Walden could actually benefit the Galleria if it gains an exciting tenant that creates a bigger draw at the mall.

That was the case at the King of Prussia Mall in Pennsylvania. That mall filled its former Sears with sought-after European store Primark and Dick's Sporting Goods, and leased its former Sears Automotive Center to Outback Steakhouse and Yardhouse Brewery.

"So now, rather than that tired old Sears, you've got two aggressive retailers and two very appealing brand-new restaurants drawing people to that corner of the mall," Dittmer said.

Eastern Hills Mall

Eastern Hills Mall also lost its Macy's last year. It is home to two severely struggling department stores  – Sears and Bon-Ton – and to J.C. Penney, which is facing challenges, too.

But with a reinvention on the horizon, those anchors' troubles may not weigh as heavily on the Clarence mall as they might have at another time. The mall's owner, Mountain Development Corp., is attempting to convert the sprawling mall to a town center development, complete with open-air plazas, shops, restaurant and upscale housing.

Ohio's Crocker Park offers a glimpse at what Eastern Hills might become

When Macy's closed, Mountain Development scrambled to buy the property, in order to clear the way for the mall's future redevelopment. Bon-Ton's closure will further clear the way, Mountain Development said.

Fashion Outlets of Niagara Falls

Outlet malls play by a different set of rules than traditional enclosed malls and have been spared many of malls' latest hardships because of it. They lack department stores, anchoring their shopping centers with larger versions of inline stores instead, such as Fashion Outlets' Gap Outlet, Forever 21 and Marshalls.

Though they're major stores filling large spaces, they take up a much smaller percentage of the center's total overall space. In turn, closures, make a smaller impact. It's also easier to fill a 27,000-square-foot Marshall's than, say, a 100,000-square-foot J.C. Penney.

Other locations

Bon-Ton is one of just about 20 stores remaining at the struggling Olean Center Mall. It is the last holdout, aside from Sears, at the former Summit Mall in Wheatfield. And it has a location at the Chautauqua Mall.

In addition to the major mall anchors, Bon-Ton will leave giant boxes behind at the Southgate Plaza in West Seneca, on Sheridan Drive in the Town of Tonawanda and on Transit Road in Lockport.

And that could be even worse, according to Burt Flickinger III, managing director of Strategic Resource Group, a retail consulting firm.

"It's more of a problem for the more open shopping centers with Bon-Ton that don't have a strong base of inline tenants," he said.

Bon-Ton will leave behind a 100,500-square-foot shell in West Seneca, along with 124,284 square feet in Tonawanda and 82,000 square feet in Lockport.

The stores' departures will likely be costly for those plazas in terms of both money and traffic. Though Bon-Ton owns its property in Lockport, it pays the Southgate Plaza more than $350,000 a year in rent, plus nearly $68,000 in maintenance fees and almost $6,000 toward its share of the plaza's property insurance, according to Bankruptcy Court documents. At the Delaware-Sheridan Plaza, the store pays more than $260,000 a year in rent and nearly $38,000 in maintenance.

Those retail plazas will find themselves with expensive holes to fill.

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