Three Biggest winners at the Bed, Bath & Beyond Lease Auction

(July 7, 2023) — Court records show that Burlington Store’s outposts and other businesses will soon replace Bed Bath & Beyond locations across America after the failed home goods retailer auctioned off leases as part of its bankruptcy proceedings. Overstock.com bought the rights to the retail chain’s intellectual property assets and paid $21.5 million for the name without any stores involved. The Bed Bath & Beyond assets acquired by Overstock.com include website and domain names, trademarks, tradenames, patents, customer database, loyalty program data, and other brand assets related to the Bed Bath & Beyond banner.

Store leases being auctioned included two Tucson and nine Phoenix stores. Click here for a complete list with expiration dates.

When Bed Bath & Beyond announced bankruptcy in late April, the retailer had 468 leases to its name, and 153 of these in 49 states were brought to auction last week, records show. Successful bids went through for only 109 of them. Successful bids went through for only 109 of them.

According to records, Burlington secured 44 of the locations at auction for $12 million, the largest share of the leases, and six more leases for $1.53 million were acquired outside the auction process, bringing its total number of locations going to Burlington to 50 for $13.53 million. Regardless of the auction results, any parties, including Bed Bath & Beyond, have until July 11 to object to any lease sales, the court filing says.

Many locations are considered “top-notch,” said Bill Read, executive vice president of commercial real estate firm Retail Specialists. Bed Bath’s lease auction allowed retailers in growth mode to snag space in prime locations amid a shortage of quality commercial real estate.

“In aggregate, the Bed Bath & Beyond locations were some of the best I’ve seen become available. They’re usually in large community centers with Target as an anchor and multiple other desirable tenants in the shopping center,” Read told CNBC.

“These are generally in well-established, mature markets with a proven track record of generating high sales,” he continued.

Several other retailers snatched up the leases. Here’s a list of the top 3 winners:

Burlington Coat Factory: 50 leases for a total price of $13.53 million.
Michael’s: Nine leases for $2.55 million.
Haverty: Four leases for $468,334.

Various landlords scored second to Burlington, winning 37 leases, allowing them to raise rents in a tight retail market. Macy’s paid $1.2 million for a lease in ritzy Winter Park, Florida, for a potential Bloomingdale location, and Barnes & Noble secured a lease in Concord, North Carolina, for $129,015.

Landlords apart from those companies won 37 of the leases, the next-largest portion after Burlington. Those landlords can now find their tenants and potentially get a higher rent price than they’d be able to within the auction process.

The leases are for Bed Bath & Beyond and Buy Buy Baby locations. Leases for the Buy Buy Baby outposts could be clawed back depending on what happens at an auction for the chain’s assets, Bed Bath & Beyond said in a court filing.

The leases sold are for stores ranging in size from 14,000 square feet to 92,000 square feet.

Bed Bath & Beyond raked in $24.41 million from the lease auction. A portion of those proceeds will likely go to unpaid rent at the locations, and the rest will go to Bed Bath & Beyond to pay the retailer’s many creditors.

When Bed Bath & Beyond filed for bankruptcy in late April, the retailer had 468 leases to its name, and 153 were brought to auction earlier this week, records show. Successful bids went through for only 109 of them.

The retailer had said in court filings that another wave of lease auctions could occur. It is unclear if that process is underway or what will happen to the additional leases that weren’t auctioned off this week.

The leases sold are for stores ranging in size from 14,000 square feet to 92,000 square feet.

Retail bankruptcies and off-price expansion

The influx of available stores comes as vacancy rates for shopping centers fell to 5.6% in the first quarter of this year, the lowest level since commercial real estate firm Cushman & Wakefield began tracking in 2007.

The lack of available retail space can hinder companies looking to expand. But retail bankruptcies can provide a unique opportunity to snatch space they couldn’t otherwise access.

When Burlington reported earnings for the three months ending April 29, the company planned to open 70 to 80 net new stores in fiscal 2023. It aimed to open even more in the coming years.

During a call with analysts, CEO Michael O’Sullivan said the company focused on “retail bankruptcies.”

“We think these bankruptcies are likely to impact the availability of attractive new store locations significantly… we’re confident that these bankruptcies will strengthen our new store pipeline,” said O’Sullivan.

“We hope in 2024 and 2025, some of the availability that we’re seeing from retail bankruptcies will allow us to open more,” he added.

Burlington’s decision to buy Bed Bath & Beyond’s leases wasn’t its first foray into bankruptcy-run lease auctions, the chief executive said on the call.

“We have a very strong real estate team with a lot of experience dealing with retail bankruptcies. Many of our most successful and productive stores today were once upon a time Circuit City, Toys R Us, Sports Authority, Linens ’N Things,” said O’Sullivan, rattling off a series of other failed retailers before Bed Bath & Beyond.

“Some of our best stores were created from carved-up Kmart or Sears locations,” he added.

Read, the executive vice president with Retail Specialists said it’s “no surprise” Burlington was the top bidder for Bed Bath & Beyond’s leases.

“Burlington is in aggressive growth mode, these are fantastic locations, and they’re getting a lot of value for their dollar,” Read said. “Companies like Ross and TJX already have enough stores in their fleet that they didn’t have to be as aggressive in an auction to get new stores, but it’s perfectly reasonable for Burlington to be aggressive to reach their store count desires.”

Read added, “They’re getting reasonable rents, great locations, great co-tenancy, and they’d probably be in a bidding war with other retailers at higher rents for these locations if it were outside of an auction.”

Aside from Bed Bath & Beyond’s April tanking and Tuesday Morning’s February bankruptcy, mass closures have been far and few between this year.

Going into the pandemic, the retail availability rate in the U.S. stood at 5.7 percent, which increased to nearly 6 percent at the end of 2020. However, availability dropped to 4.7 percent by the end of Q2 2023, meaning about 95 percent of all the country’s retail spaces were leased.