Dick’s Sporting Goods has signed a deal to lease the second-floor space of the Sears department store at The Gardens Mall in Palm Beach Gardens. But it’s unclear whether the big-box retailer will open at the luxury shopping center.
The reason? For more than three years, mall owner Forbes/Cohen Florida Properties LP has insisted Sears Roebuck & Co. doesn’t have the right to sublease part of its giant department store without first obtaining Forbes’ approval. Forbes even sought a resolution from the city of Palm Beach Gardens that states Sears can’t sublease its mall space without the approval of both Forbes and the city.
Sears maintains its lease gives it the right to sublet — and Sears has sued both Forbes and Palm Beach Gardens over the dispute.
The lawsuit raises issues about the evolution of The Gardens Mall, which has transformed itself from a sleepy suburban mall into a mecca of luxury retailers, raising the city’s profile along the way.
At issue: Does a big-box store selling gym equipment fit the chic image the mall has adopted? And can a city interfere in a lease between a landlord and a tenant?
Sears has called the city resolution “unconstitutional” because it impairs the contract between Sears and Forbes. In particular, Sears claims the city is enhancing the property rights of one private party, Forbes, at the expense of another, Sears.
The stakes are high for all players.
For Sears, finding new uses for its old space is part of a corporate strategy. Sears, with headquarters in Illinois, is transforming itself from a struggling department store chain to a company exploiting its real estate holdings at mall space it owns, or leases, throughout the country.
In Aventura, where Sears owns its building and land, Sears wants to turn 12 acres into an “open-air village,” with retail, restaurants, offices and a hotel, according to a Sears statement. A mall in King of Prussia, Pa., has been subleased in part to Dick’s; other stores have subleases with Forever 21 and Nordstrom Rack.
Sears even is exploring the creation of a real estate investment trust to buy some of its properties and manage them as a real estate company.
For Michigan-based Forbes, it’s all about preserving the cachet, and luxury focus, of its prized mall in affluent Palm Beach Gardens. The 1.4 million-square-foot shopping center has more than 150 shops and is anchored by Nordstrom, Saks Fifth Avenue, Bloomingdale’s, Macy’s and Sears. The mall is east of Interstate 95 on PGA Boulevard.
In recent years, Forbes has attracted high-end retailers such as Louis Vuitton, Tiffany & Co. and Gucci. Indeed, the mall’s website features this slogan: “Luxury Retail With No Equal.”
Meanwhile, for Palm Beach Gardens, Dick’s is just the latest in a series of big-box retailers the city has tried to limit along PGA Boulevard. In 2012, the city blocked plans for the construction of a BJ’s Wholesale Club at the former Loehmann’s Plaza. The shopping center’s owner now is suing the city, claiming it changed the zoning rules “midstream” to stop BJ’s.
Gerald Richman, a West Palm Beach attorney for Sears, declined to comment. Forbes also declined to comment. But court and city documents tell the tale.
Forbes learned in December 2011 that Sears was seeking to sublease its Gardens Mall department store. The next month, Forbes asked the city for a resolution on the topic of subleases by big mall tenants.
The resolution, passed unanimously on Feb. 2, 2012, by City Council members, mandates a two-step process for any anchor tenant at the mall wanting to sublease space.
First, the tenant must obtain approval from the mall’s owner. Then, the tenant must obtain City Council approval.
Sears never was notified of the resolution before the council voted.
Starting in 2012, Forbes warned Sears it did not approve the retailer’s marketing of any portion of its Gardens Mall space, according to court documents.
Sears said Forbes tried to block the sublease because it really wants the valuable Sears property back. In fact, Forbes tried to buy Sears out of its lease, but Sears rebuffed the offer, court documents say.
In letters to Forbes’ counsel, Sears said its lease allows for a sublease, as long as it is “less than all, or substantially all” of the premises.
Sears eventually struck a deal to sublease its 67,449-square-foot second floor to Pennsylvania-based Dick’s Sporting Goods. Dick’s has stores in West Palm Beach and Boynton Beach — and is looking for more locations.
At The Gardens Mall, Sears planned to continue to sell electronics and appliances on the first floor.
But the Dick’s deal now is on hold. Although Sears maintains Forbes has “no right” to approve the Dick’s sublease, Forbes’ saber rattling has led Sears to seek a judge’s OK on the deal.
Forbes and Palm Beach Gardens have filed court motions to toss the Sears lawsuit.
In court documents, Forbes said Sears is trying to seek a judge’s blessing on a deal that Forbes hasn’t explicitly said “no” to. Forbes also said Sears is asking the court to get in the business of mall management, which isn’t appropriate.
Meanwhile, Palm Beach Gardens has filed a motion to dismiss Sears’ lawsuit, too. “Their arguments are specious, in my opinion,” said R. Max Lohman, Palm Beach Gardens’ city attorney.
Palm Beach Gardens says Sears wrongly has called the resolution an ordinance, which is a law. The city said it passed a resolution, which is not subject to court review.
Palm Beach Gardens says it has a basis for approving this resolution: The Gardens Mall is a “signature feature of the city,” and the city has a vested interest in preserving the mall’s character.
Furthermore, Palm Beach Gardens says it has the right to exercise control over subdivisions of anchor tenant space to “protect the health, safety and welfare of the public at large,” the city’s motion says.
Sears isn’t buying the arguments.
Sears said the resolution is an ordinance masquerading as a resolution, a move that allowed Palm Beach Gardens to avoid having to give public notice, as required by ordinances. In addition, Sears mocked the city’s logic for needing to pass the resolution.
“There is no issue of public welfare involved,” Sears said in court filings. “There is no important general social problem that is being addressed. … The resolution benefits a single private party, Forbes, and no one else.
“This is a plain and egregious abuse of the city’s police power.”
Post business columnist Alexandra Clough reports on real estate, law, the economy and more. Follow her at @acloughpbp