NEW YORK (TheStreet) --Sears Holdings
(SHLD - Get Report) officials and shareholders continue to tout the unrealized value of its real estate despite the tremendous amount of vacant commercial real estate in the United States.
Investors should not take seriously the recent claims by Sears that its stores now have tremendous value due to the potential for being converted into data centers. About that, Rich Kurtzbein, a research analyst who follows data centers for 451 Research LLC, warned that, "the viability of converting to data centers in shopping malls would be questionable at best."
This can be seen by the way Sears has already revised the way it has approached converting stores to data centers.
At first, Sears stated the stores were ideal for being large data processing centers. Then when that did not work, the company line became that the automotive centers would do quite nicely for centers. A recent article in Bloomberg Businessweek reports, however, that Google (GOOG), Facebook (FB), and Microsoft (MSFT), and other high tech entities, the very buyers Sears needs to attract, are spending billions to locate data centers overseas.
Why?The data centers for Google, Facebook, Microsoft, and others are in rural areas close to cheap power sources such as wind and water. By contrast, 71% of the population in the United States lives within 10 miles of a Sears or Kmart, claims the company as a selling point. An empty store in a shopping mall in the middle of the suburbs is hardly going to work as a data center as there is not nearly enough space or enough cheap power. As the Bloomberg Businessweek article reports, "In Finland, Google uses wind power and frigid water from the Gulf of Finland to cool its computers." When those who work for or own stock in Sears pitch the real estate value, they are obviously "talking their book." There is nothing wrong with that, so long as investors do not buy Sears based on the value of its real estate. From multi-use centers to large data centers to boutique data centers, there is always a new use being pitched for vacant buildings owned by Sears. When it comes from a major shareholder like Bruce Berkowitz, who was selected "Domestic Stock Fund Manager of the Decade" by Morningstar and claimed Sears was a $160 stock based on its real estate alone in a November 2012 Fortune interview, it certainly has standing. But even more compelling is what the forces of Amazon (AMZN), Wal-Mart (WMT), Target (TGT), and others have done to Sears and the worth of its real estate and other assets. It is a zero sum game in retail. An early venture capitalist investor in Amazon, Nick Hanauer, claimed in a recent interview with The Seattle Times that, "Amazon didn't create any jobs. Amazon probably destroyed a million jobs in our economy." Along with the jobs, Amazon crushed much the real estate value for Sears, too.
Jonathan Yates does not have a position in any of the stocks mentioned in this article.