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Real Estate Dreams Nightmarish for Sears, Penney Investors

Stocks in this article: AMZNJCPRSHSHLDBONT

NEW YORK (TheStreet) -- Investors, both institutional and individual, own shares of Radio Shack (RSH), J.C. Penney (JCP), Sears Holding (SHLD), and other retailers whose value is partially based on real estate assets.

This "value investing" has occurred even though there is one billion square feet of vacant retail space in the United States, according to Urban Land magazine. While the stock prices of Sears, J.C. Penney, Radio Shack, Bon-Ton Stores (BONT) are other retailers are declining rapidly, the vacancy rate for retail space is decreasing very, very slowly.

Sears presents a particularly egregious example that the retail real estate market market is not valuing as highly as its investors.

In a November 2012 interview with Fortune, Bruce Berkowitz of the Fairholme Fund, stated that, "The value of Sears [which trades near $60] would be over $160 a share if the land on the books was fully valued ... Regardless, you'll see gigantic cash flows from the closing of locations, the pulling-out of the cash from inventory, work in process, and distribution centers. They're not idiots when it comes to real estate. They understand that today's standalone store can be tomorrow's multi-use hotel/residential-retail center."

Sears is now trading for around $37.25 a share after a bull market year for both the stock market and the retail sector.

There are now 119 closed Sears stores for sale or lease, according to the company's website. Sears has closed about 300 stores since 2010. Sears and J.C. Penney recently announced the closing of more than 33 stores. Sears still has about 40% of its closed stores for sale that were shut down since 2010 with more on the way.

Statista predicts that the vacancy rate for retail space will decline from 10.1% in 2014 to 10% by 2015. Should Sears be able to peddle its closed stores at that rate, it will still have well over 100 for sale.

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