How many Sears and Toys R Us stores are destined for self-storage?

John Egan
April 27, 2018

Dozens of Sears and Toys R Us stores recently have hit the real estate market amid the continuing upheaval in bricks-and-mortar retail, and some of those locations might gain new life as self-storage facilities.

Sixteen Sears stores are being auctioned online May 1, and a number of those sites come with agreements allowing them to be converted for self-storage, hotel or residential uses, according to the Wall Street Journal. Cushman & Wakefield has teamed up with online auction platform Real Insight Marketplace to market the properties for sale and lease-back deals, the Journal reported.

Meanwhile, some of the more than 700 Toys R Us stores in the U.S. that recently were shuttered hold the potential for transformation into self-storage space. In fact U-Haul, recently bid on a closed Toys R Us location in Highland Park, IL. In the past, several Toys R Us stores have been turned into self-storage facilities, including locations in Cincinnati, OH, and the Bronx, NY.

New life for retail

For years, self-storage developers have been rejuvenating shut-down retail stores. Phoenix, AZ-based U-Haul has been a trailblazer in this arena. For instance, U-Haul earlier this year paid $5.2 million for a former Kmart in Lancaster, CA, with an eye toward converting 80,000 of the building’s 110,000 square feet into self-storage.

Whether it’s an old Kmart, Sears or Toys R Us store, Cory Sylvester, principal of Union Realtime, a startup that provides web-based analytics for the self-storage industry, said former retail locations are attractive to self-storage developers because they tend to be in highly visible, high-traffic locations. Generally, a developer needs a former retail store to measure at least 50,000 to 70,000 gross square feet for the project to work out economically, he said.

A rendering of the proposed conversion of a vacant Kmart store in Topeka.

A taxing issue

However, Sylvester said, it’s not as simple as merely identifying and buying a shuttered retail site. What stands in the way of converting these sites is local zoning regulations, he said.

“The likelihood of conversion is largely a function of whether the existing zoning would currently allow for self-storage,” Sylvester said.

If that use isn’t permitted, then local officials must approve rezoning, which can be tough to secure, according to Sylvester. In large part, that’s because these former retail stores once generated a fair amount of sales tax revenue for a city, yet self-storage facilities don’t produce nearly as much sales tax revenue, he said.

Playing the waiting game

However, a retail store might need to sit vacant for a year or two before a self-storage developer can jump on one of those opportunities, according to Todd Amsdell, president of Cleveland, OH-based Amsdell Cos.

Why? Because it might take that long for local officials to become sensitive to a large retail store being empty for them to approve zoning that enables a self-storage conversion, he said.

“We’re a retail business, although most municipalities don’t necessarily see us that way. They keep trying to zone us into more industrial-type zoning,” Amsdell said.

But once a developer clears the zoning hurdle, adapting a retail store for self-storage typically consumes less time than ground-up construction because much of the infrastructure is already in place, according to Amsdell. His company has undertaken roughly two dozen retail-to-storage conversions including strip centers, small-scale malls, car dealerships, grocery stores and big-box stores, including former Circuit City outlets.

“We’re a location business, so it doesn’t necessarily matter to us what the previous use was — environmental issues aside,” Amsdell said. “You want to be in the most advantageous parts of town to run your business.”

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