99 Cents’ Portfolio Liquidation Garners $168M

Discount retailer 99 Cents’ portfolio of 44 owned locations across four states and 333 leased real estate assets sold through liquidation. Hilco Real Estate arranged the disposition, which generated more than $168 million in proceeds in the 75-day turnaround.

99 Cents filed for Chapter 11 bankruptcy protection in April and announced plans to close all 371 U.S. stores by the end of May. The company cited inflation and shifting consumer demand as key factors that made its business model unsustainable. The retailer originated in 1982 in Los Angeles and expanded into Arizona, Texas and Nevada.

Hilco’s sale comes at a time when retail real estate, especially open-air, multi-tenant retail, is very strong, according to Mark Sigal, CEO of Datex Property Solutions.

“With historically low vacancy rates and strengthening rental rates, landlords can be choosier about the ideal tenant mix and overall consumer experience,” he told Commercial Property Executive.

At the same time, the dollar store category faces significant challenges with pricing, product mix and margin pressures, including exposure to potential tariffs under the new presidential administration, Sigal observed.

“It’s a category where the very definition of what a dollar store is and whom it serves is being questioned. We see this in a litany of new stories about dollar stores’ understaffing, poor merchandising and a consumer experience that does not inspire in an age of peak retail.”

Ironically, Sigal said, Dollar Tree, which previously acquired 170 of 99 Cents Only Stores locations (separate from this transaction), has struggled mightily in this regard, having to face off against Dollar General, who focuses more broadly on essentials and under-served markets, where there is less competition, and rents are lower.

“Toward this end, Dollar Tree has already divested 700 locations from its ill-fated acquisition of Family Dollar, a failed effort to more directly compete with Dollar General and has seen both its CEO and CFO resign in recent months,” Sigal said.

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As most of the locations sold by Hilco are in the 9,000- to 15,000-square-foot range, these are neither anchor caliber spaces nor easily sub-divided shop space, he added. And since Dollar Tree has already presumably cherry-picked the best locations for its stores, the Hilco locations are likely to be dominants by other retail categories.

How the retail landscape evolves

The bankruptcy and closure of 99 Cents Only Stores highlight several trends in the retail industry, according to Doug Ressler, manager Business Intelligence at Yardi, told CPE.

“Many retailers are struggling with increased costs for goods and operations, which can squeeze profit margins, especially for discount stores,” Ressler said. “Consumers increasingly seek convenience and value, which can impact traditional brick-and-mortar stores.”

The closure of 99 Cents Only Stores has created opportunities for other retailers. “For example, Dollar Tree plans to reopen nearly 200 shuttered locations under its own brand,” Ressler added.

The rise of online shopping continues to challenge physical stores, pushing retailers to adapt by enhancing their digital presence and integrating online and offline experiences.

“These trends suggest that the retail landscape will continue to evolve, with a focus on adaptability and meeting changing consumer needs,” according to Ressler.

There has been a continued slowdown in retail sales, according to Robert Martinek, director at EisnerAmper. Two areas of recent concern have been in retail pharmacies and casual dining.

“We have seen a bankruptcy in Rite Aid and the announcement of 1,200 + closings of Walgreens locations,” Martinek said. “Also, it was announced that CVS is undergoing a restructuring. Online pharmacies may have hastened this downturn.”

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Additionally, casual dining chains such as Friday’s, Red Lobster and TGI Fridays have experienced significant issues, he added. Since interest rates have expanded, cap rates have increased among “all” of the NNN sector. Dollar Stores have shown some resilience compared to casual dining and pharmacies.

Discount stores remain attractive

Discount and dollar stores remain highly attractive to net-lease investors, according to Eli Randel, COO at Crexi.

“This is often due to their strategic locations in underserved markets and their relative immunity to e-commerce disruption,” Randel said. They consistently rank among the top-searched property types, he added.

“While oversaturation and changing market dynamics have led to challenges for certain units in recent years, most dollar stores continue to perform very well, delivering strong yields backed by credit-rated tenants.”

There has been an increase of dollar stores popping up coast to coast, according to Ami Ziff, managing director of National Retail at Time Equities.

“We welcome these additions to many of our value centers,” Ziff said. Hundreds, if not thousands, of former drugstore locations have been backfilled by dollar stores, which are experiencing a rapid growth spurt and, in many instances, offer groceries in areas lacking supermarkets, Ziff continued.

“The rents paid by dollar stores are often lower than those previously paid by drugstores, as the drugstore rents were inflated based on new construction combined with the fact that dollar stores generate lower average sales volumes than drugstores. However, the demand for spaces of this size remains strong nationwide.”

Earlier this year, Time Equities added a shopping center in Kansas City.

Portfolio liquidation in bankruptcy

The real estate portfolio liquidation process is not unique to the 99 Cents case, according to Patrick Collins, Farrell Fritz, P.C.

“Commercial leases are often marketed by retailers undergoing liquidation in bankruptcy,” Collins said. “Whether a commercial lease is subject to being sold for value in a bankruptcy case depends on several factors, including the amount of rent stated in the lease compared with rent at the market rate for that location and the remaining lease term.”

The retailer in bankruptcy has a strong incentive to carry out the sales process as quickly as possible because landlords are entitled to collect rent during the pendency of the bankruptcy case until the lease is assumed and sold or rejected, Collins explained.

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