You Own a Vacant Retail Big Box… Now What?

By Jacob Rich


Real estate sponsors or individual principals who own 100,000 square-foot plus retail big boxes with expiring leases or vacancy are at risk of falling victim to the so-called “Retail Apocalypse”. Unsuccessful attempts at working with tenant rep brokers and prospective tenants to backfill a new lease could leave your property in jeopardy of sitting vacant for months if not years, with carry or financing costs eroding away reserves… now what?

Large department store chains like Sears and Kmart have closed hundreds of stores over the past 36-months, cutting weaker-performing units, many located in secondary or tertiary markets. This has made circumstances even more challenging to find users equipped to occupy large, often old and functionally obsolete boxes. Wide-scale vacancies continue having a tremendous impact on the retail real estate market, leading owners, investors, and developers to seek out opportunities for adaptive reuse.

Adaptive reuse is defined as the process of taking a second or third-generation building or site and reusing it for a purpose other than it’s original design. Examples of big-box adaptive reuse typically include reconfiguring retail, or conversion to industrial logistic and community space.  Amazon is reportedly eyeing closing Sears and Kmart stores to expand the Whole Foods Brand. It’s a smart move on the Landlords part who don’t want to pay to demise or demo and build a new building, but rather for Amazon to take the building as is in exchange for capital in the form of TI’s or Landlord’s work.

Adaptive reuse isn’t necessarily reserved exclusively for retail to retail. Shifting consumer shopping preferences for e-commerce and in-store omnichannel platforms have caused developers and users to convert some vacant large retail properties to industrial logistics space. CBRE’s Industrial & Logistics Research Team reports cases of 24 retail-to-industrial projects that have commenced since 2016, turning 7.9 million square feet of retail space into 10.9 million square feet of new industrial space either by converting the existing retail structure or replacing it with new industrial construction on-site.

These projects are predominantly located in areas with a median household income below the national average and in markets with an industrial vacancy rate below 5%, indicators that elevate the value of industrial usage in locations that no longer support typical retail concepts. Standalone big-box stores closer to population centers than warehouse districts are the primary candidates for conversions. Factors favoring the retail conversion trend include prime location of many retail centers, backend dock doors with easy access for trucks, clear heights compatible with industrial usage, and ample parking. “In nearly every market in the U.S., there are sites where this kind of repurposing could work, at least on paper,” says David Egan, CBRE’s Global Head of Industrial & Logistics Research.

Perhaps your big box is not located in a prime market with demand drivers to support a Whole Foods or industrial logistic conversion, so what are your alternatives? A book titled “Big Box Reuse” published in 2008 documents ten ways secondary and tertiary markets transformed old empty Walmart and Kmart stores into churches, community centers, courthouses, and museums. One of the most famous big box reuse cases cited is the McAllen Main Library, which turned an abandoned 124,500 square-foot Walmart in McAllen, Texas into a single-story library with plentiful community and educational spaces. Several types of adaptive reuse have gained traction in recent years, as experts have learned the true size of construction’s carbon footprint and worked to reduce, reuse, and recycle whenever possible. These types of rehab conversions open the door for creative sources of financing such as PACE (property assessed clean energy financing), and municipal subsidies.

Regardless the type of adaptive reuse most suitable for your big box property, procuring the right financing can dictate the economic feasibility in executing a conversion plan. Our team at Metropolitan Capital Advisors (MCA) specializes in sourcing optimal financing across the broader market of capital providers.

For more information on financing strategies for your adaptive reuse project, please contact Senior Financial Analyst Jacob Rich at 972-267-0600 or by email at