Kmart Holding Co.'s purchase of Sears, Roebuck and Co. might be bad news for institutional investors in some real estate funds and real estate investment trusts.
The reason: Edward S. Lampert, the power behind the deal, is expected to cut costs by closing Sears stores located in malls. And malls are the major component of institutional investors' exposure to retail real estate.
Mr. Lampert is the hedge fund mogul, chairman of Kmart and major stockholder in both companies who is expected to become chairman of the combined company, Sears Holdings Corp.
"Obviously, from a big-picture standpoint, the big winners (in the Kmart-Sears deal) are neighborhood shopping center owners, and it's a huge negative for mall owners," said Rohul Bhattacharjee, associate portfolio manager for Cohen & Steers Capital Management Inc., New York. Cohen & Steers is one of the few real estate investment managers to own large portions of most of the top mall REITs.
(Typically, a mall is a larger, enclosed property with multiple anchor tenants; a shopping center usually refers to a "neighborhood" center that includes one anchor tenant, often a grocery story, and miscellaneous small shops.)