KENTWOOD — The next tenant of the 84,180-square-foot Kmart store on 28th Street in Kentwood could be identified soon, as the deadline for bids on the building’s lease is Friday.
The Kentwood Kmart is one of 284 Kmart stores in 41 states recently vacated or being vacated as part of the company’s bankruptcy proceedings.
LaKritz-Weber & Co., a commercial real estate company based in Southfield, Mich., is handling sale of the leases for all 284 stores.
The company is responsible for the sale of 18 Kmart leases in Michigan, and of those, sales associate Harry Barash is responsible for four.
Barash said of those he’s personally handling, the 28th Street store has garnered the most interest and an offer to purchase the lease has already been made.
The company is working on lease sales with DJM Asset Management LLC of Melville, N.Y., a real estate consulting and advisory firm that has subcontracted the Kmart lease work out to local brokers in respective markets.
Jim Avallone, DJM’s director, said there are a couple of parties interested in bidding on a number of locations — as many as 150 to 170 locations — and the 28th Street store may be part of one of those package deals or it may be sold in an individual bid.
Through the bankruptcy court, Kmart has been given authorization to get out of the leases. When someone purchases the lease, Kmart is removed from the lease completely.
“What we’re doing here, in essence, is we aren’t really selling the property, we’re selling the privilege to assume a long-term lease at an under-market value,” Barash explained.
“The price on a lease such as this — depending on the market and depending on how much time and so on and so forth — can range anywhere between $200,000 and $2 million, just to assume what rents have already been agreed to.”
Current annual rent at the store’s strip center location on 28th Street is $268,580, and the lease expires Oct. 31, 2006.
According to DJM, the June 7 bid deadline will be followed by a Chapter 11 bankruptcy auction on June 16 for all the Kmart properties that have not received acceptable bids from qualified parties.
A sale hearing date is set at June 28, with all lease sales subject to Bankruptcy Court approval. Purchasing parties will assume and be assigned the previously negotiated lease deal.
There are no purchase options whatsoever, and there is no right of first refusal whatsoever, Barash noted.
In the case of many of the Kmart stores, the lease purchaser could put an out-lot building on the property, such as a sit-down restaurant or bank branch, but that’s not the case with the 28th Street Kmart, Barash said.
However, the building can be expanded, he added.
Whoever purchases the lease could divide the building into separate retail units or renovate it into office space.
Office space is permissible usage of the property as it is currently zoned, said Terry Schweitzer, Kentwood’s community development director, zoning administrator and building official.
“We’ve been fortunate to have Panera Bread occupy that corner property at Lake Eastbrook and 28th,” Schweitzer added. “I would think that the Kmart property would be of some significance along that strip.”
Basically what has to happen is that somebody has to go in and purchase the lease, and whatever they want to do with it, they’re fully entitled to do, Barash said.
“One party, one group, one entity has to come in and actually control the entire lease. Kmart will not and cannot invest any money in these buildings and split it up or just sub-lease a portion of it. It’s all or nothing.”
Although no names have been disclosed, Barash said his company has been told that there is one party that has expressed “a very high level of interest” in all 284 Kmart stores nationwide.
“Who that party is we don’t know yet,” he added. “There are a lot of hurdles that they have to get over before that can happen.”
If that doesn’t happen, then the stores will go to package lease sales or individual lease sales.
When the lease on the 28th Street location is up in 2006, if the tenant that’s in place has a lease option, he can exercise the option. If there’s no option, he can either leave the location or renegotiate a lease with the landlord, Avallone said.
Kentwood tax records show the property’s current landlord is Kentwood Michigan Realty, Schweitzer said.