What went wrong with Dillard’s at Cortana? Company’s dealings elsewhere offer clues

    Cortana Mall

    It may be too late for state and local economic development officials to help entice Dillard’s—the last holdout in the deal—to sell its property at Cortana Mall to a development firm that was trying to acquire the various parcels at the former shopping center on behalf of Amazon.

    As previously reported by Daily Report, the e-retail giant was eyeing the 1 million-square-foot site for a regional distribution center to serve Louisiana and Mississippi, but the deal fell apart earlier this spring.

    While state and local officials refuse to acknowledge a deal was in the works, much less discuss what went wrong, a look at the Little Rock-based retailer’s real estate holdings and other asset sales around the country offers clues as to what some of the stumbling blocks could have been.  

    While other retail chains have been hammered in recent years by the rise of e-commerce, Dillard’s has remained relatively strong, largely because of its vast real estate holdings. As of January, Dillard’s owned 244 of its 285 stores, which includes 30 discount outlets, around the country, according to the company filings with the Securities and Exchange Commission.

    In recent years, those assets have attracted large institutional investors, according to securities analysts. In fact, more than 80% of the company’s class A stock is owned by just a handful of large hedge funds, SEC filings show.

    “Hedge fund investors get into Dillard’s all the time because they know they have that real estate on their balance sheet,” says Jen Redding, a securities analyst with Wedbush Securities. “They’ll buy for that reason and hope the real estate will go up.”

    In mid-2017, for instance, one of those funds, activist investor Snow Park Capital, reportedly began pushing for changes at the company to capitalize on its real estate portfolio. At the time, Snow Park owned 2% of the company’s outstanding class A shares, and its managing partner went public with his assessment that there was a higher and better use for some of its properties.  

    Three years later, with the company still tightly run by members of the Dillard family, it’s not clear how much influence the investors have had over how the company handles its real estate assets. What is clear is that when Dillard’s does enter negotiations to sell, it’s tough to deal with.

    “They are notorious for driving a hard bargain,” Redding says.

    Recent sales suggest the company commands top dollar for its real estate, even in tertiary markets, some smaller than Baton Rouge.

    In February 2019, a Dillard’s subsidiary sold its store at the Southern Park Mall in Boardman, Ohio, for $8.92 million.

    In July 2019, the company sold a clearance store, like the one it operates at Cortana, in Boynton Beach, Florida, for $4.5 million.

    In a situation even more similar to that of Cortana, Dillard’s was reportedly the last holdout in a deal to redevelop the shuttered Fiesta Mall in Mesa, Arizona. In January, the company finally sold the discount store it had continued to operate at the former mall for a whopping $7 million.

    Based on other property sales at Cortana, and the asking prices of other anchor stores currently back on the market there, Dillard’s would be hard-pressed to get $7 million or anything close to that for its Baton Rouge discount store.  

    The former Macy’s at Cortana, for instance, sold earlier this year to the Amazon proxy for just $1.2 million. The former Virginia College at Cortana, which had been under contract, is back on the market with an asking price of $5.5 million, though real estate experts say it will likely go for far less. 

    Redding says she has no knowledge of the Amazon dealings at Cortana but she says given current market conditions, she is not surprised the company would not want to play ball.

    “They don’t have to sell for financial reasons and there is no reason they would want to sell at rock bottom,” she says. 

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