Ramstad: The fight over the big, empty Sears store at the Mall of America rages on

Of all the empty buildings in Minnesota — the downtown office towers, suburban campuses, small-town main streets, abandoned schools and churches, and giant warehouses built on speculation — the empty Sears store at the Mall of America is becoming the most absurd.

The whopping 177,000 square feet of space hasn’t been used since Sears closed the store in March 2019. The closing happened a couple months after Sears entered bankruptcy restructuring, from which it never recovered.

It’s a legal dispute over who controls the space — the mall or a property company that is redeveloping about 200 former Sears stores. Mall executives don’t want to be in the unusual position of having a second company act as a landlord inside the mall.

The sides have already made two trips to the U.S. Supreme Court. Justices this spring rejected the latest request to get involved.

The dispute took a new twist this month when the property company, called Transform, asked the mall for up to $43 million it says it lost from businesses it recruited to fill the space but that walked away — because of the legal dispute.

On top of that, at least one of those prospective tenants — its name hasn’t been revealed in court documents — is apparently negotiating with the Mall of America for space elsewhere in the mall. Two weeks ago, Transform asked a judge to order the mall to reveal all the stores it is trying to attract.

The mall asked the judge to reject that, saying there’s a chance the mall and Transform will compete to attract tenants for years to come.

“Such prospective clients will no doubt attempt to pit [Transform] and [the Mall of America] against each other to obtain the best terms,” the mall told the judge. “But that is business, and that is free-market competition when you effectively have two landlords with space for lease in close proximity.”

You can blame all this craziness on the short-sightedness of the mall’s developers and the people of Sears back in 1992, when the mall opened. Clearly, no one imagined Sears, then the nation’s top retailer, would go out of business in less than 30 years.

The mall gave Sears a helluva deal back then: a 99-year lease under which Sears would pay a mere $10 annually.

It did this because, owner Raphael Ghermezian said in court records, the most important retailers held so much power to attract shoppers that mall owners typically paid them to be anchor tenants. Some mall operators even guaranteed the profits of anchor stores.

That three-story space is far more valuable than $10 a year, of course.

Today, I could envision the mall tearing the Sears building down and building a residential tower instead, perhaps with a grocery store or a high-end fitness center at the bottom that the mall’s shoppers could also use.

A spokeswoman for the Mall of America told me it doesn’t comment on pending litigation, and an attorney for the mall didn’t return a request for comment. Executives and outside attorneys for Transform also did not return my calls.

For Transform, a company set up by the last CEO of Sears, Eddie Lampert, the lease at the Mall of America has to be one of the most attractive assets in its portfolio.

The broker responsible for marketing the site, Mohsin Mirza at Jones Lang LaSalle in Chicago, told me there’s not much going on right now. He suggested I call back in a couple of months.

The mall argues the bankruptcy court overseeing the Sears restructuring erred in giving Transform control over Sears’ lease at the Mall of America for two reasons. First, the original contract stipulated that any successor had to be in the same financial condition as Sears at the time of the original deal. And second, the contract said “any assignment or assumption will not disrupt tenant mix or balance.”

The dispute is playing out against the backdrop of enormous difficulties in commercial real estate around the country. Office space, following the remote work shift of this decade, is in the most pain. Retail is faring somewhat better, though it’s not nearly as healthy as it was in the 2010s.

Initially, the Mall of America and Transform squared off over a jurisdictional matter.

Transform argued the mall had to accept the bankruptcy court’s decision that it owned the $10 lease and would be responsible for filling the space with other tenants. The mall said federal trial courts had a say. They argued all the way to the Supreme Court. In early 2023, justices unanimously took the mall’s side.

When it did go to federal district court, a ruled last year that Transform’s takeover of the lease was valid. The mall then obtained an order preventing Transform from leasing the space to other firms while it pursued appeals. An appellate court sided with Transform. In April, the Supreme Court declined to hear the mall’s appeal.

That brought Transform to this month’s request for damages, because it claims it had two businesses lined up to rent space in the former Sears store at the mall. It says both walked away — citing uncertainty over who their landlord would ultimately be.