SEATTLE, WA-There's a surplus of surplus big-box properties on the market, says retail specialist Steve Ruggiero, owner of Poulsbo-based First American Properties. Ruggiero, who has represented retailers like Best Products and Ernst in the disposition of excess sites and leases in bankruptcy, says companies should expect a minimum of 12 to 24 months to put solutions in place.

“There is a heavy supply of surplus buildings (in Puget Sound),” says Ruggiero. “There's interest in them, across the board, but some of these deals can be difficult to make.”

In some cases, Ruggiero says a large space that worked well for a single big-box retailer may not be easily reworked to accommodate two or more tenants (a necessary move when no large, single prospects are interested). Changes in market conditions can also make dealing in surplus dispositions seem like threading a needle with a camel—such as when a tenant is tied to a lease at a rate higher than the current market will bear.

Ruggiero has represented tenants, sub-tenants and landlords in surplus transactions. In the case of mass dispositions, such as with the Ernst, he says bankruptcy can often provide latitude and options, but also potentially roadblocks. “A retailer may have an underlying lease on a property at $3 per sf on a 100,000-sf building—and another retailer may be willing to come in and pay $8 per sf,” says Ruggiero. “But if the landlord doesn't have control of the lease, he won't be able to make the play.”

In one instance, Ruggiero says a client he represented was able to buy existing leases for about $70 million, pump in another $35 million, and then turn the properties at a very healthy profit. “That was a fun assignment,” he quips, “but it still took about three and a half years to complete.”

Instant Insights /

Big-Box Disposition Not for the Weak at Heart

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