Bed Bath & Beyond bankruptcy: What it means for industrial and commercial real estate

By James Rogers

Bed Bath & Beyond has at least nine leases for distribution space in key logistics hubs across the U.S.

Bed Bath & Beyond Inc.'s bankruptcy could have major implications for industrial and commercial real estate, experts say.

On Tuesday, Bed Bath & Beyond's (BBBYQ) real-estate adviser A&G Real Estate Partners announced plans to auction hundreds of the home-goods retailer's and affiliated retailer Buybuy Baby's leases as part of the company's Chapter 11 bankruptcy.

The plan, which is subject to court approval of bid procedures, encompasses "well-located shopping centers across the country," according to an A&G statement. The real-estate advisory firm and JLL Commercial Real Estate also plan to market a data center owned by Bed Bath & Beyond in Claremont, N.C., as well as leases for warehouses and distribution centers.

Also read: Bed Bath & Beyond bankruptcy: Hundreds of leases set for auction, pending court approval

Warehouse and data-center locations range in size from 189,000 to more than 1 million square feet, according to A&G, and are available in six states: California, Georgia, Nevada, New Jersey, Pennsylvania and Texas.

Bed Bath & Beyond has at least nine leases for distribution space in key logistics hubs across the U.S., according to real-estate data and analytics company CoStar Group. "We're tracking at least 6.1 million square feet of distribution space that they currently lease across the U.S.," Adrian Ponsen, CoStar Group's national director of U.S. industrial analytics, told MarketWatch. "They tend to occupy very large, modern distribution spaces."

According to CoStar's data, 85% of the distribution space that Bed Bath & Beyond occupies in the U.S. is in properties built after 2005 that are larger than 500,000 square feet. "This is high-quality, big-box distribution space," Ponsen said, adding that some markets have a pressing need for that type of center. He cited in particular Las Vegas and northern New Jersey, where Bed Bath & Beyond has three and two distribution centers, respectively. "I don't think it's going to be challenging to find tenants for these particular spaces," he said.

Now read: Bed Bath & Beyond bankruptcy: These retailers could pick up the company's bones

Ponsen thinks that other retailers and third-party logistics companies are most likely to take over the Bed Bath & Beyond distribution centers. "We still have a lot of growth happening among a lot of retailers that sell basic day-to-day necessities," he said. "They are still growing their networks."

However, Ponsen did not discount the possibility that Bed Bath & Beyond's distribution centers in Atlanta and Memphis could be taken over by large-manufacturing users.

On the commercial real-estate side, A&G says that Bed Bath & Beyond's leases are at "well-located shopping centers across the country." The Bed Bath & Beyond stores, which are located in 48 states and the District of Columbia, range in size from 18,000 to 92,000 square feet, according to the real-estate advisory firm. The Buybuy Baby stores, which are located in 37 states, range from 14,000 to 63,000 square feet.

Also read: Bed Bath and Beyond takes aim at ocean carriers, seeks millions in freight dispute

The "slow and steady demise" of Bed Bath & Beyond should come as no surprise to owners and investors in the commercial real-estate space, according to Mitch Rosen, head of real estate at Yieldstreet, an alternative-investment platform for retail investors. "There are plenty of retailers that have adapted and changed with the times to be successful, and there are others who did not quite pivot in the right way or timeframe as was needed, which resulted in the outcome we see here with Bed Bath & Beyond," he said in a statement.

While Rosen said that retail "is by no means dead," he warned that the impact of the company's bankruptcy would be felt in commercial real estate. "For the owners of these [Bed Bath & Beyond] locations where the leases will likely get rejected through the bankruptcy process, they will likely have a very hard time finding a tenant to take the entire space that [Bed Bath & Beyond] occupied. More likely, new money will need to be spent to break the space up to accommodate smaller tenant users," he said.

"There is a time cost, dollar cost, and uncertainty in the ultimate success of that strategy," Rosen added. "This will take some time to play out."

Also read: Bed Bath & Beyond: From home-goods behemoth to bankruptcy

Shares of Bed Bath & Beyond began trading over the counter last week after the Nasdaq Composite started the delisting process for the bankrupt retailer. Trading under the ticker BBBYQ, the stock opened at 7.5 cents on its first day of over-the-counter trading. The stock is up 5.7% and trading at 20 cents Wednesday.

Bed Bath & Beyond's bankruptcy came after a troubled couple of years marked by strategic missteps, cash burn, challenging underlying business trends and the impact of the COVID-19 pandemic.

-James Rogers

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05-10-23 1523ET

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