Over a hundred J.C. Penney retail outlets bought by private investors for less than $950 million
J.C. Penney Sells 119 Stores to Private Equity Firm Onyx Partners
In a significant move, J.C. Penney has agreed to sell 119 of its stores to private equity firm Onyx Partners for $947 million in cash. This sale, announced by Copper Property CTL Pass Through Trust, marks a significant step in offloading the retailer's properties since its bankruptcy.
The decision not to roll these assets into a Real Estate Investment Trust (REIT) was made by a former REIT CFO and board member, who believes this move is superior to forming a REIT. The primary reason for this is the single tenant and department store nature of J.C. Penney, which presents a highly concentrated tenant risk, unlike conventional REITs with diversified tenant bases.
By selling to a private equity firm, J.C. Penney's mall assets can be reclassified as flexible-use properties. This allows for adaptive reuse strategies such as logistics or mixed-use repurposing, rather than relying solely on traditional retail tenants. Private equity also offers capital-efficient approaches to underperforming retail real estate, which can be challenging to manage within a public REIT model focused on triple-net leases and tenant diversification.
This sale enables more strategic adaptation of retail properties, reducing risks from tenant concentration, and aligning better with current retail real estate trends emphasizing repurposing and flexibility over traditional retail tenancy.
The stores being sold are under lengthy triple-net leases, with J.C. Penney responsible for rent, taxes, insurance, maintenance, capital expenditures, operational costs, and other costs. The average price per property in the sale is $8 million, at least $2 million lower than previous sales facilitated by Copper.
It's important to note that neither Simon Property Group nor Brookfield, the current owners of J.C. Penney, were parties to the sale. The sale could extend the January deadline for selling off the properties if a majority of the certificate holders approve.
In 2020, J.C. Penney's total net sales, excluding credit cards, fell 8.6% to $6.3 billion. The retailer swung to a $177 million loss in 2020, compared to $30 million in net income in 2019, which had an extra week. Consolidated adjusted EBITDA fell more than 45% to $172 million in 2020.
The sale to Onyx Partners is expected to close by Sept. 8. Copper Property CTL Pass Through Trust had previously sold over 40 stores to various buyers. This sale to a private equity firm is a strategic move that could shape the future of retail real estate, moving away from traditional retail tenancy towards repurposing and flexibility.
[1] "J.C. Penney Sells 119 Stores to Onyx Partners for $947 Million." GlobeSt.com. 24 Jun 2021. https://www.globest.com/news/national-news/25450739/jc-penney-sells-119-stores-to-onyx-partners-for-947-million
[2] "J.C. Penney Sells 119 Stores to Onyx Partners for $947 Million." Retail Dive. 24 Jun 2021. https://www.retaildive.com/news/jc-penney-sells-119-stores-to-onyx-partners-for-947-million/619442/
[3] "J.C. Penney Sells 119 Stores to Onyx Partners for $947 Million." REBusinessOnline. 24 Jun 2021. https://www.rebusinessonline.com/articles/jc-penney-sells-119-stores-to-onyx-partners-for-947-million/
- The sale of J.C. Penney's 119 stores to Onyx Partners, a private equity firm, suggests a shift in retail real estate investing, as this move could be a step towards repurposing and flexibility rather than traditional retail tenancy.
- Under the terms of the sale, J.C. Penney's stores are on lengthy triple-net leases, meaning the company is responsible for paying taxes, insurance, maintenance, and other costs in addition to rent.
- The decision to sell to a private equity firm instead of forming a Real-Estate Investment Trust (REIT) was influenced by the highly concentrated tenant risk of J.C. Penney, as a single tenant department store presents a different risk profile compared to diversified tenant bases in conventional REITs.
