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NEW YORK CITY-The retail sector was the chief culprit behind a 13-basis-point increase in CMBS loan delinquencies during February, Fitch Ratings reports this week. Among 46 newly delinquent retail loans totaling $277 million, says the ratings agency, are eight loans backed by now-dark, single-tenant properties.

“Eight of the new defaults corresponded to single-tenant facilities fully leased to now-bankrupt tenants, bringing the total number of vacant stand-alone facilities in the index to approximately 40,” says Fitch executives, referring to its US CMBS loan delinquency index, which rose to 1.28% last month. “With few retailers seeking to expand their current store base, Fitch expects that many vacant big box spaces, both stand-alone and components of larger centers, will remain empty for the foreseeable future.”

Further, the Fitch report says it expects retail properties to account for a growing portion of the overall CMBS loan default rate.

“As expected, a prolonged decline in consumer spending has forced weaker retailers out of the market, in turn placing significant stress on commercial real estate fundamentals,” says Susan Merrick, Fitch managing director and head of its US CMBS group. “As retail landlords struggle with increasing vacancies at existing center, they must cope with new market realities including a deceleration in new store openings, an overhang of new supply and continued downward pressure on rents demanded by those tenants still in operation.”

Though certainly not alone, one net lease property investor feeling the impact of retail tenant bankruptcies is Great Neck, NY-based REIT One Liberty Properties Inc. In announcing its fourth quarter 2008 results earlier this month, One Liberty president and chief executive officer Patrick Callan states that the ripple effect of the economic recession’s impact on its tenants, particularly its retail tenants, has begun to reach the company itself.

For example, Circuit City rejected two leases with One Liberty as part of its bankruptcy proceedings in December 2008, and then rejected its remaining three leases with the company this month.

“We cannot project how our tenants will fare during the continued economic uncertainty,” Callan says in One Liberty’s earnings release. “We expect that consumer confidence and spending will continue to decline and that there will be continuing pressure on our retail tenants. As a result, we intend to proceed cautiously with new investments and will monitor our portfolio carefully.”

In other single-user retail-related news, Michael Ashner, chairman and chief executive officer of Winthrop Realty Trust and former Lexington Realty Trust executive chairman, is among five candidates hedge fund manager Bill Ackman plans to nominate for election to Target Corp.’s board of directors.

Last year Ackman, a frequent stockholder activist and the founder of Pershing Square Capital Management LP, unsuccessfully urged the Minneapolis-based retailer to spin off the land under its buildings into a separate company. The plan called for Target, which owns the majority of its real estate, to spin off the property in a REIT and lease back the dirt under long-term master ground leases. Now it appears Ackman is revisiting the prospective value of Target’s real estate holdings by nominating Ashner for the board, along with himself and three other nominees who bring expertise in food retailing, credit card business and corporate finance.

“We think, and we’ve thought for a while, that it’s a very significant opportunity in Target’s real estate business. It’s not something that the market gives Target any credit for,” Ackman told a Bloomberg News reporter in an interview on March 16. “We had developed a transaction that we think would create a fair amount of value, which so far we’ve not been successful convincing the company. But I think part of that is that there’s no one on the board with any real estate background.”

Several years ago Ashner headed up another REIT, Newkirk Realty Trust, which owned a portfolio of triple-net lease properties. In late 2006, Newkirk merged with what was then called Lexington Corporate Properties Trust. The net lease REIT was renamed Lexington Realty Trust and Ashner served as its executive chairman and director of strategic acquisitions until early last year. Lexington and Winthrop continue to be affiliated through a debt investment joint venture.

“I think he could certainly give the board perspective from a real estate person’s point of view as to whether our strategy or another one is a good idea, with respect to real estate for the company,” Ackman says of Ashner in the Bloomberg interview.

Target responded that its board will nominate four current directors up for re-election, saying that is in the best interest of the company’s shareholders. “We are disappointed that Pershing Square has decided to pursue a costly and disruptive proxy contest, especially in light of our previous dialogue,” Target says in an announcement. “Target has a long history of being responsive to shareholders and has engaged in numerous discussions with Pershing Square over a 20-month period.”

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