Tyrone Square Mall redevelopment a sign of the times for retail

ST. PETERSBURG — The fences are up and the construction has started. The former Sears department store at Tyrone Square Mall, which had been open for nearly 50 years, closed months ago to make room for new development: Tampa Bay's first Lucky's Market organic grocery store and a Dick's Sporting Goods.

It's a classic sign of the times for the American shopping mall — traditional department stores are closing at a remarkable rate while newcomers are gobbling up the prime real estate left behind after their funeral. But in an intriguing turn of events, the flailing, though long-standing Sears store that closed in St. Petersburg and the new tenants that are coming in after it, are all benefiting the same company. Or at least, the same owner.

Seritage Growth Properties is the New York-based real estate company in charge of a redevelopment plan at Tyrone Square Mall, which includes demolishing the 188,515-square-foot department store to make way for a new 151,952-square-foot shopping center for tenants like Dick's, Lucky's and Petsmart, with room for one more anchoring retailer. Seritage, which went public in 2015, is responsible for developing more than 200 Sears department store sites across the country. It's the same company that turned half the Sears space at Westfield Countryside Mall in Clearwater into a Whole Food Market.

Previous Coverage: Developer wants Sears out, Dick's Sporting Goods and Lucky's Market in at Tyrone Square Mall

The link? Billionaire Eddie Lampert.

Lampert is the founder and chairman of a lot things. He's the chairman of Sears Holding Corp., the parent company of Sears and Kmart, where he also became the company's CEO in 2013. He owns the majority of shares in Sears Holding Corp., too. The former AutoNation executive is the head of ESL Investments, his own real estate hedge fund. And guess what? He's the chairman of Seritage Growth Properties, the real estate development company spinning off 200-plus department stores.

It's worth noting that the market value of Sears Holding Corp. is about a measly $800 million compared to Seritage's $2.4 billion value.

Clearly this is a lucrative move for Lampert and Seritage, and in some cases, Sears, which like many other retailers, has more stores than really makes sense these days. As Sears stores continue to under perform, Seritage can stop the bleeding by closing a store altogether or by leasing out part of its large space to another tenant.

"It's a unique situation. Certainly the value of these department stores are in their real estate," said Jeff Green, a retail analyst based in Phoenix. "It's a way for the Sears' parent company to monetize some of these locations by spinning them off into a separate public company."

Think of Seritage as the landlord of a good chunk of Sears department stores. When they come up with a better plan for that real estate's future, Seritage has the right to kick out its current tenant or change up the size of the store through the leases its signed with Sears.

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As of January, Sears leased 337 of its 670 full-line Sears stores and 668 out of 735 Kmart stores through Seritage, according to a company spokesman. Seritage owns 266 of those locations, giving them a playground of more than 40 million square feet of retail space to experiment with.

"It's a smart way of downsizing the box," Green said. "What you're finding now is that Sears stores are too big. In many cases the retailer is closing its second story and just operating out of the first one. Redevelopment is a great cost savings measure, and its an attempt to keep the retail company viable for a little longer."

Malls may be the least relevant today than they've ever been, but their real estate is still incredibly valuable, analysts say.

"If a store isn't performing there are plenty of others who are lined up to take over that desirable space," said Steve Kirn, a lecturer on retail at the University of Florida. "Sears has some very good locations, places that are highly desirable for a Dick's Sporting Goods or a Whole Foods. Space can easily be reconfigured."

It's interesting to see a CEO and chairman that will benefit no matter what the future holds for the struggling retailer he basically owns and oversees.

Or maybe Lampert just sees the writing on the wall. Department stores are very quickly becoming relics of retail's past, with the likes of Amazon and others surging ahead in the digital and brick and mortar spheres. The only value Sears has left, after years of steadily declining same-store sales, layoffs and store closures, is the real estate parcels it owns at malls around the country.

So what happens when and if Sears goes down for good? Seritage will likely pivot and work with other retailers. The real estate firm has completed 50 commercial real estate projects with a combined investment of $500 million since its inception in 2015. While the vast majority of the company's investment is in Sears, Seritage also has interests in 31 properties through joint venture investments with major mall developers like General Growth Properties, Simon Property Group and Macerich.

Contact Justine Griffin at jgriffin@tampabay.com or (727) 893-8467. Follow @SunBizGriffin.