The City of Sarnia, in the Canadian province of Ontario, is a community of 70,000 people on the shores of Lake Huron. Sarnia is one of the gateways to the United States, located just an hour northeast of Detroit. The city brags of its “breathtaking sky blue water and beautiful waterfront parks.” Although a small city, Sarnia says it offers “big city amenities.” For years it has offered big box amenities as well. Wal-Mart has been playing musical chairs in Sarnia — and now they have left city officials with an eyesore. The retailer first opened up a Wal-Mart discount store in the south mall section of Lambton Mall. In 2003, Wal-Mart closed its store in the south section of Lambton Mall, to open a 130,000 s.f. mall in the east section of the same mall. Over the years, Lambton Mall increased in size to 600,000 s.f. from 390,000 s.f. With anchor stores like Canadian Tire, Sears, and Wal-Mart, Lambton Mall promoted itself as being “well positioned as a regional shopping centre.” This week, the Sarnia Observer newspaper reports that Wal-Mart has vacated its second home in Lambton Mall to build a larger supercenter nearby, leaving behind what the newspaper called “an eyesore.” Wal-Mart is still paying rent on the 130,000 s.f. store on the east side of Lambton Mall. Their lease agreement has the company paying rent until 2021. “We have no interest in leaving that space empty,” a Wal-Mart Canada spokesman told The Observer. “The process we’re going through now is finding a replacement tenant. It’s uncommon for our former locations to stay empty for too long, but it does require someone being interested, then it requires some agreement and creativity on our part.” A group called the Primaris Retail Real Estate Income Trust, which owns the Lambton Mall, says Wal-Mart’s must maintain the site for another 14 years. Wal-Mart can find some company, or group of companies, to sublet their space. “We obviously believe in the area as a retail hub because we’ve invested tens of millions of dollars in relocating our store in the immediate vicinity,” the Wal-Mart spokesman noted. “Obviously everyone is hopeful there will be new occupants there shortly, and that includes us.” Local speculation is that Wal-Mart is intentionally keeping their old space vacant to keep out the competition.
At any point in time, Wal-Mart has between 300 and 350 “dark stores” on the market in the United States. Over the past decade, Wal-Mart has emptied out more than 900 of its discount stores — which puts it in the Guiness Book for most abandoned stores. As Wal-Mart Canada enlarges its old Woolco locations, many of these stores too will come on the market. These ‘smaller’ stores are not easy to reuse, and in the states, at least one-third of Wal-Mart properties that come on the market, stay on the market for at least three years. In Sarnia, Sears moved into the first empty space that Wal-Mart created, but now the same mall is dealing with Wal-Mart leaving a second time. If Wal-Mart’s lease with Primaris is similar to leases that the retailer used in many U.S. locations, Wal-Mart pays a very low rent to hold the space. The rent has a base level for occupancy, plus a percentage of sales. When Wal-Mart walks out on such a lease, all it has to pay is the base rent, since no more sales exist. This allows them to “carry” the lease for very little cost. It is the landlord who takes the big loss. In many leases, Wal-Mart is not even required to continuously operate a retail store. Today, Wal-Mart rents most of its properties from itself. The company created a Real Estate Investment Trust about ten years ago, eliminating companies like Primaris. Wal-Mart can now “rent” from its own REIT, and deduct that rent from its taxable interest in many states. Sarnia gets left with an eyesore, and the mall owner gets left with an empty space. Wal-Mart gets its new supercenter stand-alone location, and shoppers in Sarnia continue to feed the store that has left them with another dark store. Readers should contact Sarnia City Manager Ann Tuplin, at citymngr@sarnia.ca and urge her to pass a “demolition bond” city ordinance that requires developers to put money into a fund to demolish their building, if, for any reason, the cease operating a retail store for more than 12 consecutive months. The developer’s escrow funds would be used to restore the site to its predevelopment state. For earlier stories on this REIT tax break, search Newsflash by ‘REIT’.
