Simon Property Group Doubles Rent After Saks Off 5th Closures

How Simon Turned Saks’s Empty Stores Into a Rent Windfall

Simon Property Group has found a silver lining in Saks Global’s bankruptcy. After the luxury retailer vacated roughly 1 million square feet of store space earlier this year – almost all from Saks Off 5th closures – the mall owner’s occupancy rate held steady through the second quarter, and new tenants are already paying substantially more. Chief Executive Officer Eli Simon told analysts that leases already signed for about half that empty space will generate rent that exceeds the $18 million Saks had been paying annually. By the time the remaining space is filled, Simon expects total rent from those vacated stores to reach $44 million.

That leap reflects a strong leasing environment for top-tier malls. Initial base rent on new leases across Simon’s portfolio rose 17% year over year in the second quarter, while tenant allowances – the upfront cash landlords provide for fit-outs – fell 12%. Together, the figures suggest retailers are competing for space and willing to accept less financial support from the property owner. The performance helped lift net operating income from all Simon properties in North America by 7.6% in the first half of the year, to nearly $3 billion.

The upbeat picture for Simon’s landlord business, however, contrasts with its own retail operations. A segment that includes J.C. Penney parent Catalyst Brands, e-commerce site Rue Gilt Groupe, and mixed-use investment firm Jamestown posted a $53 million net operating loss in the first six months of 2026, compared with a modest $227,000 profit a year earlier. J.C. Penney’s sales continued to slide, and some analysts believe the department store chain will need more financial support from Catalyst to buy time for a turnaround.

Why Prime Mall Landlords Hold the Upper Hand

Simon’s ability to quickly replace a distressed tenant with higher-paying occupants underscores a powerful dynamic in retail real estate: well-located malls can treat a large vacancy as an opportunity to upgrade the tenant mix.

Landlord’s Dream: Replacing a Distressed Tenant

When Saks Global – now operating as Exemplar Luxury Group after its Chapter 11 exit – gave up space, it surrendered below-market rents. By backfilling those stores, Simon is effectively marking its portfolio to current market rates. The jump from $18 million to a projected $44 million in annual rent is a textbook example of “leasing spreads” working in the landlord’s favor. It also signals that the departing retailer was not paying rents that reflected the true demand for those locations.

The Numbers That Signal a Seller’s Market

A 17% increase in initial base rent on new leases is a sharp figure that points to strong competition among retailers for prime mall space. Add the 12% drop in tenant allowances, and the picture becomes even more favorable for the landlord: tenants are offering higher ongoing rent while asking for less upfront capital. Together, these metrics suggest Simon holds significant bargaining power in its best properties, a trend that likely extends to other top-tier REITs.

The Two Sides of Simon: Landlord vs. Retailer

The contrast between Simon’s property-income growth and the $53 million loss in its owned retail segment highlights a strategic tension. The very mall traffic that benefits Simon’s core leasing business is not lifting the performance of its own department store asset, J.C. Penney. If Catalyst Brands must keep injecting funds into J.C. Penney to keep it afloat, the capital used there could otherwise have been deployed in Simon’s higher-return real estate operations. Investors may start to question how long the REIT should remain exposed to operating struggling retailers when its core competency is leasing space to many different brands.

What Simon’s Deal Means for Retail Tenants and Investors

• For REIT investors: Track whether Simon converts the remaining half of the vacated space into signed leases at the same premium rate. If the $44 million rent target materialises, it represents a meaningful boost to same-property net operating income that will flow through to funds from operations.
• For retail chains: The 17% rise in initial base rents and the 12% reduction in tenant allowances indicate that negotiating leverage in top malls has shifted. Brands that want premium physical locations may need to lock in leases now before spreads widen further.
• For property owners: Simon’s experience is a live case study in the value of maintaining high-occupancy, high-demand centres. The ability to let a large tenant go and re-lease at a higher rate rests on having a waiting list of replacement tenants – a position that requires consistent investment in the mall’s appeal.
• For credit analysts covering J.C. Penney: The owned-retail segment’s $53 million operating loss, combined with continued sales declines, raises the risk that Catalyst may need to redirect more cash to the department store. That could divert resources from Simon’s more profitable real estate activities, a contingency worth modelling into credit assessments.