Sheboygan, WI. City May Take Dead Wal-Mart By Eminent Domain
Citizens in Sheboygan, Wisconsin have learned the hard way that Wal-Mart will come to your town, and then depart. When they go, they can leave behind a real mess.
As Sprawl-Busters noted on February 21,2010, Wal-Mart has 44 properties for sale in Wisconsin, including 9 buildings that are sitting empty. Of these 9 properties, 3 are over 100,000 s.f. Wal-Mart left a dead store in Sheboygan, Wisconsin four years ago. They sold it to a developer -- with a lot of strings attached. That's why after four years, the property has become an eyesore.
Wal-Mart built a new superstore on Vanguard Avenue in Sheboygan just a few miles south from its 'old' store -- but it is the dead store Wal-Mart left behind that now has city officials worried. According to Wal-Mart, Sheboygan has roughly 82,000 people within a 10 mile radius of their new supercenter. But in 1989, when Wal-Mart first opened a discount store in this city, local officials had no idea that 17 years later the retailer would shut the store down.
But even worse -- Wal-Mart put restrictions on the building when they sold it to a private developer, that effectively ties up the store for another 4 years. According to the Sheboygan-Press, the 'old' store has been empty since 2006. It was the anchor store for a mall known as Taylor Heights. Wal-Mart sold its building to developers based in Milwaukee -- but there were some serious strings attached to the sale of the 129,000 s.f. building.
Wal-Mart walked away from this huge property insisting that any new owner could not use it for a grocery store, pharmacy, or discount department store larger than 30,000 s.f. These restrictions are in place until the year 2014 -- giving the new Wal-Mart supercenter plenty of time to establish its customer base -- without nearby competition. Such deed covenants have been standard operating procedure at Wal-Mart Realty, which is why you don't see many empty Wal-Marts filled by competitors.
The dead store in Sheboygan is one of an estimated 250 'ghost boxes' that Wal-Mart is trying to unload. A Wal-Mart spokesman told the Sheboygan-Press that his company would like to have its dead stores reoccupied -- just not with direct competitors. Wal-Mart openly admits that these kind of deed restrictions are commonplace at Wal-Mart. "We welcome competition in the marketplace, but what we can't be doing is providing infrastructure for our competitors in the same market," the Wal-Mart spokesman told the newspaper.
This has left the city of Sheboygan chafing at the lack of redevelopment at this prominent commercial site. "It is obviously very frustrating," Mayor Bob Ryan told the Press back in February of 2010. The Mayor admitted that Wal-Mart's actions "will hold back development at that property for years. And without that building filled, that area does not redevelop."
Wal-Mart says it wants to get rid of these buildings, but its restrictions say otherwise. "We want to ensure our former locations are converted back into a productive use as soon as possible," Wal-Mart explained to the Sheboygan-Press. "It makes good sense for us financially, and also for the community." But holding these properties becomes a defensive way for Wal-Mart to keep the trade area as much to itself as possible.
Several days ago -- eight months after our last report -- the Sheboygan Redevelopment Authority held a public hearing to consider whether the dead Wal-Mart is blighted. The SRA could take control of the empty building by eminent domain if it rules that the property is blighted. The current owner, BR Companies, has been unable to redevelop the building because of the restrictions placed on the sale by Wal-Mart. If the SRA acquires the building, Wal-Mart's deed restrictions would be voided.
The Taylor Heights shopping center was decimated by the Wal-Mart closure. Since the giant anchor store left, other stores like Piggly Wiggly, Blockbuster Video and a series of smaller tenants have left the mall. Mayor Bob Ryan says he's got some new tenants showing interest -- but he won't tip his hand. BR Companies has admitted that it had interested parties as well -- but Wal-Mart stood in the way.
At the Redevelopment Authority hearing last week, local businesses testified that the dead Wal-Mart store was "an eyesore and a safety hazard," according to the Sheboygan Press. "It's a safety hazard as far as I'm concerned, and it's been detracting to our business, as it makes our property look bad," said the owner of Culver's restaurant. At te hearing, city officials said the dark store has suffered many break-ins, and attacks by vandals.
BR Companies, the unfortunate owner, now has 15 days to file an objection to the blight determination -- which they won't do because they want to city to take it off their hands. In fact, the real estate developer has agreed to reimburse the Redevelopment Authority for all costs related to the blight determination process. The SRA will make its final decision on the property at its meeting on September 23rd.
What you can do: Even the local newspaper has jumped into the fray. In a September 5th editorial, The Sheboygan Press said "the ideal scenario" would be for Wal-Mart "to remove the restrictions and welcome the competition." "We find it interesting," the newspaper wrote, "that a company that boasts having the lowest prices would need to hide behind restrictive covenants to prevent head-to-head competition."
The Press worries that an eminent domain battle could end up in court, and lead to a drawn-out court fight that "could cool the interest of a future business operator." But letting the property sit for another 4 years was also unacceptable to the newspaper.
In the end, the Press editorialized that the city should "take extraordinary steps to speed up the process of securing a major retailer for the former Wal-Mart site."
About ten years ago, Wall Street analysts began criticizing Wal-Mart for carrying on its books hundreds of empty, nonproductive properties. At one point in the late 1990s, Wal-Mart had as many as 350 empty stores in their portfolio -- stores they liked to refer to as 'dark stores.' They were carrying the expense of these stores, one-third of which were over 100,000 s.f., and one-third of which had been on the market for three years or longer.
Wal-Mart responded to this criticism by hiring a bunch of private real estate companies across the country to help dispose of its properties, and expanded its Wal-Mart Realty staff to at least 7 people disposing of buildings and land. In some cases, Wal-Mart even gave away stores that were not moving. Despite this increased spending on marketing their 'dark stores,' several hundred of them are still dark. If you assume at least 20 acres per site, Wal-Mart is currently sitting on at least 5,000 acres of properties with buildings -- not counting the hundreds of parcels of land that they also are trying to sell.
Not only is the Taylor Heights mall 90% empty -- but the Press says that at the nearby Memorial Mall, retailers are feeling a drop in traffic since Wal-Mart moved away. This unpleasant experience with dead stores has taught city officials in Sheboygan that they need to be better prepared next time.
The city's planning and zoning manager told the Press that he favors the idea of having empty big box stores demolished by their owner after a set time period to prevent dark stores in the first place. "We need to ensure that we do our due diligence to make sure these buildings are demolished so the vacancies don't lead to areas that aren't doing as well as they could be."
Readers are urged to email Wal-Mart's Real Estate manager Mike Webb at firstname.lastname@example.org with the following message:
"Dear Mr. Webb, For four years now, city officials in Sheboygan, Wisconsin have been worrying over your 'dark store' in their city. The restrictive covenants you have placed on your property have guaranteed that the 'old' store will not be sold -- and those restrictions are in place another 4 years.
It's time for Wal-Mart to stop sitting on this store, and to release its new owners from your anti-competitive covenants. Wal-Mart likes to talk about the competitive marketplace and consumer choice, yet you take overt action like this to prevent anyone from using stores that you have abandoned. Shoppers in Sheboygan are being harmed by your decision to tie up that property. It's time for Wal-Mart to get out of the way, and let any willing tenant use the building."