Issue 24 for the week of July 17, 1996

The Dealmakers Issue Number 24 for the week of July 17, 1996.

My Way by Ted Kraus

Ann and I recently attended the ICSC's Mid-Atlantic Idea Exchange in Reston, VA and in keeping with what has become the norm lately, if it wasn't the largest Mid-Atlantic show, it was up there. I wouldn't say the mood was upbeat, but most seemed "content," making enough deals over the past six months to either break even, make a couple of bucks or lose just a little. The leasing people that have been job hunting for the last year appear to have accepted the reality that there isn't an abundance of jobs out there willing to pay 'em $150,000, car, expenses and bonus, plus have the president tell them every 15 minutes how great they are, so they're planning on staying where they are or at least until they're laid off. At past shows the "talk" was on which big box tenants are expanding and where, now it's on which big box tenants are closing, where and when.

Everyone seemed more willing to co-broker than ever before, taking the approach that a half of loaf is better than none.

The show's last day was a "retailers only" event, where the retailers had booths and developers and brokers walked around the exhibit hall hoping to find a bride. What was interesting was about a third to 40% of the "retailers" exhibiting were brokers (for the record, we exhibited, representing two retailers so this isn't meant as a slam) who were representing retailers. Forty percent is a high number and shows the radical change our industry has undergone in the last few years. Brokers may not have prestige, but they now have more "power." Following through on this topic, I had a close friend at the show come up and "bitch" to me about an editorial I wrote a month ago that he felt was "anti" broker/consultant (he's a "consultant," but if it looks like and smells like a duck, it's a broker). He said, "How can you say all those negative statements about brokers, you're a broker, I'm a consultant and we both provide great services for our clients."

I agreed and after we both decided we were the only two competent brokers left in the country (this is a joke, so don't get uptight), I then explained/elaborated on my position. Brokers are great, they provide a necessary service and in the vast majority of cases, earn their keep. But I have a problem with a trend the industry is following. The problem being is with the tenant's rep, where the broker is representing the tenant, but is paid by the developer. Two out of five won't compromise a deal because their "opponent" is paying 'em. The problem is the remaining three. If the retailer really wants good real estate and a "good" deal, then they should pay the broker, that way there's loyalty to the retailer, not the "man" with the check. (Its called conflict of interest, its a little like Dole saying that there's no proof that smoking is bad for you and the fact that he's accepting millions from the tobacco industry is irrelevant.) The retailer is looking for trouble when "he" gives an exclusive to a broker but wants all compensation to come from the developer. Take a look at most of the retailers that use brokers on an exclusive basis without compensating them and I'm willing to bet that in the vast majority of cases they have real estate problems, often (but not always) corruption problems and because of weak real estate, operations problems.

Oh well, no one listens to me, so I'll stop harping and go onto another topic.

I attended a seminar in Reston on the "Internet" and while the room wasn't as packed as the "retailers forum," it was well attended. I think the main outcome of the seminar was to prove (but it wasn't meant to) that we're not there yet when it comes to the Internet being a viable and necessary tool. I'm almost, but not quite a computer nerd: got into computers 16 years ago and set up the industry's first computerized shopping center network with Murray Shor of Shopping Center Digest 15 years ago. This was in the days when "management" thought computers were glamorized typewriters and only secretaries should use 'em. Our company was more computerized 15 years ago than many of the Fortune 500 companies (maybe that's why we lost money). We started an online service on commercial real estate four years ago (in "Internet" time, that's equivalent to 50 years) and had a Home Page and commercial real estate e-mail forums three years ago. I say all this not to brag, because if I was really smart, I'd figure a way to make money off it instead of spending $30,000 a year to maintain the service. Its to establish some degree of credibility on my behalf. Most of what was presented at the session didn't make sense (and was somewhat boring) or the services being offered were overpriced. One company that spoke wanted to show how they were becoming "consumer oriented" and the consumer by surfing to their site, clicking here, then clicking there, a customer could find out where the shoe stores were in their neighborhood. God, it would take 10 to 15 minutes minimum to "get there" and unless their database of centers and retailers is extensive, the consumer will retrieve a limited amount of information. They'd be far better off using the yellow pages. That would take one minute, is a lot easier and more accurate.

The same is true for many of the existing and proposed Home Pages that would have listings of property for sale or lease, demos, photos, site plans, aerials, etc, etc, etc. That's great and to some extent, useful, but the costs they are trying to charge are ridiculous. First, in most cases, we as an industry can't respond as quick as the technology allows. How many retailers do you know who instantly need a complete leasing package, including aerials, so they can make a decision that very moment. It could take, based on current technology if you don't have a direct connection to the Internet, one hour to download the files. Real estate people don't have that type of patience.

From a practical viewpoint, while it's useful to have the basic info available on-line, combined with a "button" that sends e-mail requesting more information if the viewer wants it, to pay $7,000 a year to be able to instantly view an aerial doesn't make sense. The developer can second-day UPS a package, that's more than ample in 95% of the cases. How many times have you overnighted a leasing/sales package, called two days later and have been informed "he" hasn't gotten around to opening it yet. If I had 10% of the money wasted on overnight delivery that wasn't necessary, I'd make Bill Gates look like a pauper.

Parting Thoughts: At Reston I bumped into someone I hadn't seen in 20 years and we got talking about the "good old days" when we were young and dumb. He then made a profound statement, "We were so dumb we did deals that couldn't be done, we just didn't know better." God, he's right. I used to do lots of crazy deals, today 99% of 'em are "normal." Why? Because I'm now smart and know they can't be done.

Retailers Seeking Sites Throughout New England

Burlington Coat Factory Warehouse trades as Decelle trades as at eight locations in MA and NH. The stores, selling family apparel at discount price-points, occupy spaces of 25,000 sq.ft. to 50,000 sq.ft. in freestanding facilities, regional malls, power and strip centers. Plans call for as many as two openings in the coming 18 months. Expansion will take place in New England.

For more information, contact Mrs. Lee Kilcollum, Burlington Coat Factory Warehouse, 1830 Route 130 North, Burlington, NJ 08016; 609-387-7800.

Fay's, Inc. trades as Fay's Drug Stores at 272 locations in NH, NY, PA and VT. The drug stores occupy spaces of 13,500 sq.ft. in freestanding facilities. Plans call for 15 openings in the coming 18 months. Expansion will take place in the existing markets.

For more information, contact Verne Netzer, Fay's, Inc., 7245 Henry Clay Boulevard, Liverpool, NY 13088; 315-451-8000, Fax 451-4375.

Home Vision Entertainment trades as Home Vision Video at 55 locations in ME, MA and NH. The stores, selling audio and video equipment, occupy spaces of 4,000 sq.ft. to 6,000 sq.ft. in strip centers. Plans call for as many as 30 openings in the coming 18 months. Expansion will take place in the existing markets.

For more information, contact David Latulippe, Home Vision Entertainment, 4 Industrial Park, Brunswick, ME 04011; 207-725-7000, Fax 725-6151.

J. Baker, Inc. trades as Parade of Shoes at 202 locations in CT, IL, ME, MA, MD, MI, NH, NJ, NY, PA, RI, VA and Washington, D.C. The stores, selling women's shoes and accessories, occupy spaces of 1,800 sq.ft. in downtown store fronts, regional malls and power centers. Growth opportunities are sought in CT, MA, ME, RI, NJ, FL, MD, MI, NJ, NY, PA, VA and Washington, D.C.

For more information, contact Joseph Cornely III, J. Baker, Inc., 555 Turnpike Street, Canton, MA 02021; 617-828-9300, Fax 821-0614.

Hannaford Bros. trades as Hannaford Bros., Shop N Save, Wilsons and Martins at 133 locations in ME, MA, NH, VT, NY, NC and SC. The supermarkets occupy spaces of 45,000 sq.ft. to 62,000 sq.ft. in freestanding facilities and strip centers. Growth opportunities are sought in the existing markets.

For more information, contact Arthur Aleshire, Hannaford Bros., PO Box 1000, Portland, ME 04104; 207-883-2911, Fax 885-2042.

Lauriat's, Inc. trades as Lauriat's Books, Encore Books, Royal Discount Books and Book Corner at 147 locations in CT, ME, MA, NH, VT, NY, MD, DE, PA and NJ. The bookstores occupy spaces of 5,000 sq.ft. to 8,000 sq.ft. in regional malls and strip centers. Growth opportunities are sought in the existing markets.

For more information, contact Mark Podgur, Lauriat's, Inc., 1 Washington Street, Wellesley, MA 02181; 617-235-0033, Fax 235-3634.

Carrols Corp. trades as Burger King at 220 locations in CT, ME, MA, VT, NC, NJ, NY, OH, MI and PA. The fast food restaurants occupy spaces of 3,500 sq.ft. in freestanding facilities, regional malls and strip centers. Plans call for the opening of four units in the coming 18 months. Expansion will take place within the existing markets.

For more information, contact Rick Cross, Carrols Corp., 968 James Street, Syracuse, NY 13217; 315-424-0513, Fax 425-8874.

Weathervane Retail Corp. trades as The Weathervane at 100 locations in CT, ME, MA, NH, RI, VT, NY, PA, NJ, NC and GA. The women's apparel stores occupy spaces of 4,500 sq.ft. in regional malls. Growth opportunities are sought in the existing markets as well as throughout the Midwestern region.

For more information, contact Thomas Davidson, Sr., Weathervane Retail Corp., 300 John Downey Drive, New Britain, CT 06051; 203-224-6029, Fax 224-8515.

LeeJay Bed & Bath operates 45 locations in CT, ME, MA, NH, NY, DE, NJ and PA. The stores, selling specialty linens and housewares, occupy spaces of 15,000 sq.ft. to 20,000 sq.ft. in regional malls, outlet, power and strip centers. Growth opportunities are sought in the existing markets.

For more information in the New England area, contact Larry Brodney, c/o Brodney & Sons, 260 Bear Hill Road, Waltham, MA 02154; 617-890-4333, Fax 890-1834. For more information in the Mid-Atlantic area, contact David Vender, c/o Equity Properties, 600 Haverford Avenue, Suite 204, Haverford, PA 19041; 610-353-6300, Fax 645-5454.

Bavarian Soft Pretzels, Inc. trades as Bavarian Soft Pretzels at 85 locations in CT, MA, MD, NJ, NY, OH, PA and VA. The stores, selling pretzels and snacks, occupy spaces of 150 sq.ft. to 600 sq.ft. in regional malls. Plans call for 10 openings in the coming 18 months. Expansion will take place in MA, VT, NY, KY and OH.

For more information, contact Peter Ballas, Bavarian Soft Pretzels, Inc., 505 West Rosedale Road, Lancaster, PA 17604; 717-299-0968, Fax 299-1476.

Waban, Inc. does business as BJ's Wholesale Club at 73 locations in CT, ME, MA, NH, RI, DE, FL, MD, NJ, NY, PA and VA. The wholesale clubs occupy spaces of 115,660 sq.ft. in freestanding facilities, power and strip centers. Plans call for eight openings in the coming 18 months. Expansion will take place within the existing markets.

For more information, contact George Drummey, Waban, Inc., 1 Mercer Road, Natick, MA 01760; 508-651-6063, Fax 651-6070.

Cinema North Corp. operates four locations in VT and NY. The movie theaters, which operate 23 screens at four sites, occupy spaces of 20,000 sq.ft. in power and strip centers. Plans call for the opening of four units in the coming 18 months. Expansion will take place in the existing markets.

For more information, contact Gerald Couture, Cinema North Corp., PO Box 549, Rutland, VT 05702; 802-775-4915, Fax 775-6943.

Bertucci operates 83 locations in CT, MA, NH, NY, NJ, PA, MD, IL, FL, VA and Washington, D.C. The restaurants, specializing in brick oven pizza, occupy spaces of 5,000 sq.ft. to 6,000 sq.ft. in freestanding facilities, power, specialty and strip centers. Plans call for as many as 15 openings in the coming 18 months. Expansion will take place in the existing markets.

For more information, contact Michael DiGuiseppe, Bertucci, c/o Realty Partners, Northeast, PO Box 5481, Beverly Farms, MA 10915-0519; 508-921-8081, Fax 245-5071.

Di Geronimo Brothers Victory Markets trades as Victory Super Markets at 15 locations in MA. The supermarkets occupy spaces of 55,000 sq.ft. to 60,000 sq.ft. in freestanding facilities, power and strip centers. Plans call for three openings in the coming 18 months. Expansion will take place in MA and RI.

For more information, contact Everett B. Lonzo, Jr., Di Geronimo Brothers Victory Markets, PO Box 992, Fitchburg, MA 01420-0992; 508-345-4545.

Travel 2000 operates 49 locations throughout the Eastern and Midwestern regions. The stores, selling "virtually everything a traveller could need or want," occupy spaces of 1,500 sq.ft. in regional malls. Plans call for as many as 20 openings in the coming 18 months. Expansion will take place in CT, ME, MA, RI, NJ, NY and VA.

For more information, contact Steven Latham, Travel 2000, 3120 Sovereign Drive, Lansing, MI 48911; 517-882-2988, Ext. 14, Fax 882-1094.

Jonathan Reid Ltd. trades as Jonathan Reid at six locations in MA and NY. The apparel stores occupy spaces of 3,000 sq.ft. in regional malls. Growth opportunities are sought in the existing markets.

For more information, contact John Segan, Jonathan Reid Ltd., 166 Glen Street, Glens Falls, NY 12801; 518-793-5679.

Souper Salad, Inc. trades as Souper Salad and Souper Salad Express at 12 locations in MA. The restaurants, serving soups, salads and sandwiches, occupy spaces of 1,000 sq.ft. to 4,000 sq.ft. in downtown store fronts. Plans call for six openings in the coming 18 months. Expansion will take place in the existing market.

For more information, contact Bruce Reinstein, Souper Salad, Inc., 63 Chapel Street, Newton, MA 02158; 617-527-9600, Ext. 820, Fax 527-9621.

Newbury, Inc. trades as Newbury Comics-Compact Discs at 15 locations in MA, NH and RI. The stores, selling pre-recorded music, comic books and collectibles, occupy spaces of 3,000 sq.ft. to 4,500 sq.ft. in freestanding facilities and end-caps of strip centers. Plans call for as many as four openings in the coming 18 months. Expansion will take place in the existing markets.

For more information, contact Ria McNamara, Newbury, Inc., c/o The Bayliss Co., Inc., 1000 Boston Turnpike, Shrewsbury, MA 01545; 508-845-5000, Ext. 303, Fax 842-6100.

Dumouchel Apothecary of Waltham does business as Eaton Apothecary at nine locations in MA. The drug stores occupy spaces of 2,500 sq.ft. to 3,200 sq.ft. in downtown store fronts and strip centers. Growth opportunities are sought in the existing market.

For more information, contact Mark Dumouchel, Dumouchel Apothecary of Waltham, 264 Washington Street, Wellesley Hills, MA 02181; 617-237-7310, Fax 237-7278.

Prague Shoe Company, Inc. trades as Prague's Family Shoes at 30 locations in CT, MA, RI and NY. The shoe stores occupy spaces of 2,500 sq.ft. in regional malls and strip centers. Plans call for five openings in the coming 18 months. Expansion will take place in CT, MA and NY.

For more information, contact Ron Wilson, Prague Shoe Company, Inc., 6085 South Iola Way, Englewood, CO 80111; 303-781-9007.

Perception Versus Reality

by Alan Alexander, SCSM, CPM

Over the past five years our industry has been good and bad, easy and difficult, frustrating and rewarding and above all, ever changing. Some of the changes have taken place gradually so they are rather subtle and some have come at us like a freight train at full throttle.

When the market first started to turn down from the landlord's point of view many landlords had a hard time grasping what was taking place and were very resistant to the need for reduced rents, more concessions to either get new tenants or hang on to the ones they had. It was very difficult for a landlord to think in terms of less rent and, therefore, less value just to hang on to a marginal tenant, but one that would be extremely hard to replace. Lease renewal time did not mean an increase in rents, but often meant going backwards, and often by a substantial amount. It took some time for the landlord's perception to be turned into reality and for the landlord to what was right no matter how difficult.

Many of us are now in the opposite position in that the market has finally turned for the better in many parts of the country, but our tenants have not yet realized that the market has changed. This was brought to mind in a recent situation in a small shopping center.

A long term, very successful tenant had an option to renew his lease under terms which would continue the current formula which was a fully net lease with annual cost of living increases. Without doing a market survey, but relying on all of the bad news of past years, the tenant perceived that the market was still quite weak and that it was time to make a much better lease arrangement. the tenant was paying approximately $2.55 per foot per month including all triple net items. Instead of exercising the option as it stood the tenant made the landlord an offer to extend the lease for five more years, to add two five year options, to give the tenant four months free rent so he could "upgrade" the premises, substantially reduce the administration fee on the common area costs and to reduce future CPI increases to a maximum of two percent per year. The final blow came when the tenant offered the landlord a starting rental package at $1.80 per square foot including all triple net items.

This tenant occupies one of the prime corners within the shopping center and the other prime corners recently renewed their lease at a rental range in the area of $2.40 per square foot, including all triple net items. The initial impact of this "low ball" offer was to anger the landlord. The landlord's reaction to this offer was to tell the tenant to find a new location. In reality the two parties will likely negotiate a new lease, but it will be a long difficult negotiation.

However, there is a lesson to be learned from this situation for the landlord and for the landlord's managers. When the market is changing the landlord and his or her managers must be fully aware of what is happening. The more that the changes can be anticipated, the more likely the landlord will be in a position to understand what the changes will mean to tenants and to work to educate the tenants, in advance, that the market is changing and what it means.

The renewal tenant is potentially one of the most difficult to negotiate with. This tenant has often spent most of his of her time running their store and not looking at the rental market. Quite often rents can be increasing at a dramatic pace and the typical small tenant may be completely unaware of that. When the time comes to negotiate a new lease after, say five years, the tenant is shocked to find out that rents have doubled and they had no idea.

We should start working with tenants regarding their lease renewals at least six months in advance. We should be fully aware of what the rents are in the market place and what the situation is with availability of like space. By starting to talk with the tenant in advance we can take the time to educate the tenant as to the likely alternatives. This approach will take away the last minute shock to the tenant of the large increase. We have seen tenants move to new space and/or close their store completely in a fit of anger over new rents and/or terms. The anger came from the last minute shock of what was going on rather than what was going on itself. It is also important to impart the information to the tenant in a sympathetic fashion. It costs the landlord or the manager nothing to show sympathy for the tenant having to face increased costs and a squeeze on profits and it goes a long way in improving the landlord/tenant relationship.

We as managers and owners have no choice but to maximize the return on our shopping centers by getting market rents and terms, but in the process it is in our best interest to be sure that the perception of the market place very closely fits the reality for the tenant. We are much more likely to reach the market rents with our renewal tenants if they are fully informed, given some time to absorb and understand what the market has to offer and is allowed to face the difficulty of higher costs with a little show of empathy from the landlord and/or his or her representatives.

Alan Alexander is a senior vice president of Woodmont Real Estate Services, 1050 Ralston Avenue, Belmont, CA 94002; 707-0224-5126; Fax 224-5018.

Financial News

Best Buy Co., Inc. (612-947-2000) reported that its first fiscal quarter revenues increased 28% to $1.637 billion from $1.275 billion last year. First quarter net earnings were $409,000 compared to $4.672 million last year. Comparable store sales were up 4%. During the quarter, the company opened eight stores and is planning to open three during the second quarter and as many as 14 during its third quarter. Currently, the company operates 259 stores in 31 states.

Boston Chicken, Inc. (303-278-9500) recently completed the conversion of its $120 million loan to Einstein Bros. Bagels, Inc. into a 68% equity interest in the company. Boston Chicken also filed a Registration Statement for an initial public offering of 2.2 million shares of common stock.

Pier 1 Imports, Inc. (817-878-8000) reported that its first quarter earnings were $8.3 million compared to a loss of $18.3 million during the same period last year. First quarter revenues were $205.3 million, a 16% increase from $176.8 million last year. Comparable store sales increased 10.8%. The company also announced that it plans to phase-out its women's apparel departments. The company plans to remodel 50 stores annually and open 50 stores annually during the next several years.

Melville Corporation (914-925-4000) plans to change its name to CVS Corporation and move its headquarters from Rye, NY to Woonsocket, RI during the Summer. The company plans an initial public offering of stock of the new company during September. The company also announced that it plans to convert 80 of its 100 Thom McAn stores to Footaction stores and close the remaining 20 Thom McAn units by the middle of 1997.

Graubard Mollen & Miller (212-818-8800), a New York City law firm, recently won a $300 million real estate tax assessment reduction for Kings Plaza Shopping Center in Brooklyn, NY. The settlement covered 1988 through 1995. The law firm also won an $11.5 million real estate tax assessment reduction for Alexander's Department Store in Nassau, NY. The settlement covered 1989 through 1993.

Darden Restaurants (407-245-4000) reported that its earnings for its fiscal year increased 10% to $119.2 million from $108.3 million last year. Sales were up slightly to $3.19 billion from $3.16 billion, which included $71.1 million from the closed China Coast restaurants. By division, Red Lobster's sales of $1.92 billion were even with last year's results with comparable restaurant sales down 2.2% for the year. The Olive Garden reported a six percent sales gain to $1.26 billion with comparable restaurant sales up 2.3%. During the year, Red Lobster opened 25 units and closed 11 to end with 729 restaurants while The Olive Garden opened 13 units and closed three to end with 487 units.

Bed Bath & Beyond, Inc. (201-379-1750) reported that net earnings for its first fiscal quarter were $7.7 million, up from $5.7 million during the same quarter last year. Net sales increased 40.7% to $159.7 million from $113.5 million with comparable store sales up 8%. During the quarter, the company opened six stores and currently operates 86 units in 22 states.

Drug Emporium, Inc. (614-548-7080) reported that net sales for its first quarter increased 25% to $206.7 million compared to $165.1 million during the first quarter last year. Net income was up to $501,000 from $489,000 last year. Comparable store sales increased three percent. The company currently operates and franchises 232 stores trading as Drug Emporium, F&M Super Drug Stores, I Got It At Gary's and Big D.

Ben Franklin Retail Stores, Inc. (708-462-6100) reported that its fiscal 1996 net sales increased to $374.7 million from $354.8 million in FY95. However, the company reported an operating loss of $34.5 million as compared to operating income of $4.7 million the previous year. A net loss of $27.1 million was reported for FY96 compared to net income of $1.6 million last year. The company currently operates and franchises more than 330 craft stores and 530 variety stores.

Imaginarium, Inc. (510-930-8666), which operates 67 toy stores nationwide that specialize in educational and non-violent toys, recently filed for Chapter 11 protection. The company listed assets of $21 million and liabilities of $18.6 million.

Bankruptcy Perspectives from Both Sides

by Chris Gesualdi, Editor

With so many retailers filing for bankruptcy and closing stores during the last few years, developers and landlords have taken the attitude of "not if a retailer will go broke, but when will a retailer go broke." That was the tone David Samber, president, director and chief operating officer of Kimco Realty Corporation of New Hyde Park, NY set at the June 14 International Council of Shopping Centers Small Center Symposium held in West Conshohocken, PA.

Samber made that comment while opening the session titled "Coping with retail bankruptcies... unconventional leasing strategies to fill vacancies, revitalize small centers and keep the community alive." Other panelists included Alan F. Feldman, vice president, acquisitions of The Rubin Organization of Philadelphia, PA; Norman Kranzdorf, president and chief executive officer of Kranzco Realty Trust of Conshohocken, PA; Dan Kirtland, vice president of real estate for Caldor Corp. of Norwalk, CT; and Robert Szwajkos, partner of the law firm of Lavin Coleman Finarelli & Gray of Philadelphia, PA.

Opening the session, Samber, whose company did a sale-leaseback deal with Venture stores, told more than 100 real estate professionals that volatility in the retail industry has always existed and that it always will. "Who's fault is it," Samber asked rhetorically, "Wall Street, the consumer or technology?" he answered. Samber added that landlords and developers must see possible problems coming and learn to profit from them. Feldman added that bankruptcy has become a $900 million industry in today's economy.

Kranzdorf, looking at retail bankruptcies from the developer's and landlord's point of view, said that bankruptcies are a plague on both the tenant and landlord and told attendees that it is "a matter of time before you are affected." Kranzdorf added that bankruptcies are no longer a peripheral part of business, but an integral part of today's business and that it is very important for the developer and landlord to learn about how a tenant's bankruptcy can affect their cash flow. Continuing, Kranzdorf said that developers and landlords need to learn what rights they have over their own properties.

"Landlords' right can be completely stonewalled by the bankruptcy courts," Kranzdorf stated, An aside comment was "Herman's (a sporting goods chain that filed twice and currently is being liquidated) simply doesn't pay the rent, doesn't care that they are not paying the rent and forces a landlord to go to court." Later he said, "the laws are clear, but not followed by the courts." Kranzdorf said that at one time a bankrupt tenant and a landlord could negotiate, but that changed when retailers began hiring companies that specialize in bankruptcies. As a result, Kranzdorf said that developers and landlords have to hire their own bankruptcy experts. Kranzdorf also criticized lease auctions saying that they are bad because a landlord does not know who is bidding on the lease.

Szwajkos compared the current bankruptcy laws, adopted in 1979 to replace laws from the Depression era, to Alice in Wonderland. "Some never want to leave, at least until the queen starts chasing them," he said. Painting an even gloomier picture, Szwajkos said that three out of five businesses will go bankrupt, the fourth will close for unknown reasons and the fifth will survive. "Out of all of the businesses today, 10% will go bankrupt, with restaurants leading the way."

Szwajkos said that under the bankruptcy code, retailers have 60 days to decide if they want accept or reject a lease, but added that the period is often extended, sometimes into years. "Here's what happens usually," he said. "Thirty days before a retailer files for bankruptcy the phone is ringing off the hook and the retailer is thinking 'what should I do.' Thirty days after filing, no one is calling, but no cash is coming in either. Sixty days after filing, the retailer is asking, 'When's Christmas.'" Continuing, he said, "there are a lot of excuses used, such as new officers, studies, Christmas season, etc. and some courts think that retailers should be allowed to wait until the end of their bankruptcy case to decide if they should assume or reject a lease and that can take years." He added, "there are 425 bankruptcy judges in the U.S. and they all have their own ideas of the law." He also said that while this is going on landlords are sitting with tenants who sometimes are not paying rent.

Szwajkos also said that he does not like lease auctions and added that "stalking horses" are commonly found at such auctions. "Stalking horses are there to drive-up the cost of the lease." Another problem Szwajkos cited is lack of notice of a pending auction, "a landlord may want to bid on his own property, but he may not even know it is up for auction because he did not receive the proper notification. The law was created to give notice, but it is sometimes not followed." Giving some examples, Szwajkos said that Herman's did not give one his client's proper notice regarding its lease auction, then spoke about Jamesway's liquidation. "It took Jamesway nine months to decide what they wanted to keep before deciding to liquidate," he said. "Then there was the question of tenant improvements which say Jamesway selling fixtures that weren't even theirs. After rejecting the lease they stayed at the store and continued to sell the fixtures that weren't theirs," he said. Szwajkos concluded by saying that landlords and developers need to understand the bankruptcy process and be particularly aware of the difference in the individual state bankruptcy laws as well as the federal bankruptcy laws.

A Retailer's Perspective

Dan Kirtland of Caldor, the fourth largest discounter in the U.S., provided the group with a retailer's perspective of bankruptcy. Kirtland said that Caldor was forced into bankruptcy because they became cash poor after paying off some debt. "We did not have bad real estate and we did not have a lot of debt, but our earnings per share suffered. In 1994 we paid off a lot of debt, but made no allowances to replace that money. Then things went flat in September of 1994 and we plain and simple ran out of money. Since no one had experience with bankruptcy, we did not have a plan, and we did not hire any outside experts."

Kirtland said that company had several stores under construction and several more ready for fixturing when they filed Chapter 11 and that leases had to be renegotiated. "We made some deals based on projections that turned out to be wrong," he said. Kirtland added that in order to open new stores, the company needs permission from its creditors and that some would not grant it. "We have several stores with signed leases, but construction has not started. These stores will not be built."

Commenting on the 60 day lease decision law, Kirtland said that he had to evaluate all of the leases and deals by himself and that he needed at least five or six months for his financing department to complete their studies. "Retailers need to look at individual stores to decide which ones to close," he said. Kirtland said that so far, Caldor has closed its stores in Rochester and Syracuse, NY, but added that those stores would have turned a profit either this year or next year. "We hurt ourselves," he said, "the consumer doesn't want to take a chance on big ticket items when a retailer is in bankruptcy." Kirtland said that the company eventually did hire outside experts to renegotiate leases and cut costs. Kirtland pointed out, and the other panelists agreed, that companies should hire outside consultants when it comes to the disposition of real estate.

Kirtland said that Caldor has a date of February 1997 to decide which leases the company will accept and which it will reject "and that could be extended," he added. "Most landlords don't want leases rejected," he said, "but 60 days is not enough time to make a decision and you can make a wrong decision. Every store and every landlord is different." He said that the company is continuing to pay its rents, CAM and taxes while in bankruptcy. "We are trying to cooperate," he said.

Kirtland cautioned the group to pay attention to its CAM responsibilities because "both parties are still responsible and can be found in default." He added, "the world does not stop for bankruptcies (it is called "ordinary course of business) and that you have to continue to do the things you would do as long as you don't de-value the estate." Concluding on an upbeat note, Kirtland said the Caldor is looking at new real estate deals.

Collecting Rent in Bankruptcy Cases: No Need To Prove Benefit to Estate

by Kenneth A. Rosen, Esq. and Jon Ettman

A bankruptcy court in Dallas, TX recently decided in In re Amber's Stores, Inc. that debtor/lessee could not retroactively reject a lease. On April 4, 1994, debtor entered into a 60-month non-residential real property lease agreement with Petula/lessor. Amber's vacated the premises and turned over its keys to Petula more than a month before its Chapter 11 petition on September 8, 1995. Amber's served Petula with a motion to reject the lease simultaneously with the filing of its bankruptcy petition. Petula requested payment of all unpaid rent that accrued between the date on which Amber's commenced its bankruptcy case, September 8, and the date on which the court entered the order authorizing Amber's to reject the lease. Amber's sought court approval of its rejection of the lease retroactive to September 8 so that it would not have to pay an post-petition rent.

The court followed the majority view in deciding whether Petula was entitled to an administrative expense priority for post-bankruptcy, pre-rejection lease payments. The majority view is that a lessor is entitled to an administrative expense priority (typically full payment) without having to establish its claim for administrative status under section 503(b)(1)(a) of the Bankruptcy Code (that the debtor was benefitted by the existence of the lease). The court based its decision on the language of section 365(d)(3), which states that the debtor "shall timely perform all of the obligations... under any unexpired lease of non-residential property, until such lease is assumed or rejected, notwithstanding section 503(b)(1) of this title." The court claimed that the meaning of section 365(d)(3) is clear and "complies with the wishes of the drafters of the statute to insure timely performance of rental obligations by the debtor and to provide an incentive for a quick decision by the debtor to assume or reject the lease."

The Amber's Court also agreed with the majority view by holding that the date of rejection is established by the date on which the court signs an order. The court reasoned that establishing the date of rejection by the date on which the court signed the order is preferable because it provides certainty and it prevents a lessor from re-leasing the property prior to the court signing an order and thereby running the risk that the order may not be entered.

In Amber's, however, recall that Amber's had vacated the premises and turned over the keys more than a month before filing its Chapter 11 petition. As a result, the court approved the rejection of the lease retroactively to the date of commencement of Amber's bankruptcy case. The court reasoned that to rule otherwise would penalize the debtor and reward the lessor for the time lag between filing a motion and the date on which the court signs the order approving rejection of the lease.

Consequently, although Petula was entitled to unpaid post-petition rent which accrued before the lease was rejected, it was denied an administrative claim for such rent because the date of rejection was fixed as the date on which the bankruptcy petition was filed. Amber's stands for the proposition that lessors do not have to prove benefit to the estate in order to be paid rent and that, except in very unusual circumstances, lessors are entitled to be paid rent up to the date on which the court signs an order permitting the debtor to reject a lease.

Kenneth Rosen, Esq. and Jon Ettman are attorneys with the law firm of Ravin, Sarasohn, Cook, Baumgarten, Fisch & Rosen, P.C., 103 Eisenhower Parkway, Roseland, NJ 07068-1072; 201-228-9600, Fax 228-6083.

Lead Sheet

RW Reed Co.

dba Reeds

Jack Reed, Jr.

129-131 West Main Street

Tupelo, MS 38801

601-842-6453, Fax 844-8254

Accessories

The four-unit chain operates locations in MS. The stores, selling accessories and apparel, occupy spaces of 5,000 sq.ft. in downtown store fronts, freestanding facilities, regional malls and specialty centers. Growth opportunities are sought in the Southern region. Leases running 20 years are typical.

Persuasion

Raymond Cohen

683 Broad Street

Newark, NJ 07102

201-642-7059

Apparel

The three-unit chain operates locations in NJ and NY. The women's apparel stores occupy spaces of 5,000 sq.ft. in downtown store fronts and strip centers. Growth opportunities are sought in the existing markets.

McGillen's, Inc.

dba Craft Depot

Ron Lewis

1904 Drew Street

Clearwater, FL 34625

813-442-9918, Fax 447-7720

Arts & Crafts

The six-unit chain operates locations in FL. The stores, which sell arts, crafts and hobby supplies, occupy spaces of 20,000 sq.ft. to 36,000 sq.ft. in power and strip centers. Growth opportunities are sought in the existing market.

Jan's Card Shops, Inc.

dba Jan's Card Shop

Joe Alldredge

PO Box 1035

Albertville, AL 35950

205-878-8192, Fax 878-8194

Cards & Gifts

The 10-unit chain operates locations in AL, MS and TN. The stores, selling Hallmark cards and gifts, occupy spaces of 2,500 sq.ft. to 3,000 sq.ft. in regional malls. Growth opportunities are sought in the existing markets.

Jungle Jim's Playlands, Inc.

Jungle Jim's Playland

Kevin Smith

60 Hickory Drive

Waltham, MA 02154

617-890-1800, Fax 890-1810

Entertainment

The 10-unit chain operates locations in AZ, IL, KS, MD, MO, TX and UT. The concept, which features entertainment for children including kiddie rides, arcade games, ball-slide activities, food and birthday party rooms, occupies spaces of 25,000 sq.ft. to 30,000 sq.ft. in freestanding facilities and strip centers. Preferred anchors include Toys 'R Us and tablecloth restaurants. Plans call for as many as 15 openings in the coming 18 months. Expansion will take place in CT, IL, MD, MA, MI, NJ, NY, OH, PA and VA. Preferred demographics include a population of 250,000 within five miles earning at least $45,000 as the average income.

Swiss Pretzel Shops, Inc.

dba Famous Corn Dog, Chicago Hot Dog

Michael Sternik

24293 Telegraph Road

Southfield, MI 48034

810-353-0730, Fax 353-7592

Food

The 190-unit chain operates locations nationwide. The restaurants, serving Chicago-style hot dogs, pretzels and corn dogs, occupy spaces of 150 sq.ft. to 500 sq.ft. in regional malls. Plans call for as many as 15 openings in the coming 18 months. Expansion will take place nationwide.

Raymour & Flannigan Furniture

Tom Hornstein

PO Box 220

Liverpool, NY 13088

315-453-2500, Fax 453-2570

Furniture

The 26-unit chain operates locations in MA, NY and PA. The stores, selling furniture and appliances, occupy spaces of 40,000 sq.ft. to 45,000 sq.ft. in freestanding facilities and strip centers. Plans call for two openings in the coming 18 months. Expansion will take place in PA.

S&A Stores, Inc.

dba S&A Stores

Ike Kairey

160 West 34th Street

New York, NY 10001

212-244-2220, Fax 239-4735

General Merchandise

The 12-unit chain operates locations in NJ and NY. The general merchandise stores occupy spaces of 2,700 sq.ft. in downtown store fronts. Growth opportunities are sought in the existing markets.

Shady Lamp Workshop, Inc.

dba Shady Lamp Shop

Jack Wilson

1800 Mearns Road, Building JJ

Warminster, PA 18974

215-672-2350, Fax 672-6401

Home Decor

The six-unit chain operates locations in NJ, NY and PA. The stores, selling lamps, lamp shades and home furnishings, occupy spaces of 2,000 sq.ft. in strip centers anchored by major retailers. Growth opportunities are sought in DE, MD, NJ and PA. Leases running five years, with two options of five years each, are typical.

Kitchen Kapers, Inc.

dba Kitchen Kapers

Harold Kratchman

1250 Marlkress Road

Cherry Hill, NJ 08003

609-424-3400, Fax 424-4039

Housewares

The 11-unit chain operates locations in DE, NJ and PA. The stores, selling gourmet housewares, occupy spaces of 2,000 sq.ft. in regional malls, specialty and strip centers. Growth opportunities are sought within the existing markets as well as in NY.

Jack Brenner Investments, Inc.

dba Jack's Aquarium & Pets

J.B. Brenner

802 Orchard Lane

Beaver Creek, OH 45434

513-320-4300, Fax 320-4310

Pet Store

The 23-unit chain operates locations in FL, KY and OH. The pet stores occupy spaces of 5,000 sq.ft. to 6,000 sq.ft. in power centers. Preferred anchors include Wal*Mart. Plans call for as many as four openings in the coming 18 months. Expansion will take place in KY and OH. Preferred demographics include a population of 50,000 within three miles earning $30,000 as the average income. Leases running five to seven years are typical.

Photo Drive-up, Inc.

dba Photo Drive-up Franchising

Dave Packett

1900 Camden Avenue

San Jose, CA 95124

800-835-9772, Fax 371-8635

Photo

The three-unit chain operates locations in CA. The stores, offering one-hour photo processing services, photocopying services and new release video rentals, occupy spaces of 1,200 sq.ft. to 3,000 sq.ft. in freestanding facilities and strip centers. Plans call for 12 openings in the coming 18 months. Expansion will take place in the existing market. The company cites Blockbuster and Kinko's as competition.

Postal Annex +, Inc.

dba Postal Annex +

David Wilkey

9050 Friars Road, Suite 400

San Diego, CA 92108

619-563-4800, Fax 563-9850

Service

The 193-unit chain operates locations nationwide. The stores, which offer postal, parcel, copying and business services, occupy spaces of 900 sq.ft. to 1,500 sq.ft. in downtown store fronts, power and strip centers. Preferred anchors include supermarkets. Plans call for 48 openings in the coming 18 months. Expansion will take place in CA, MI, OR, PA, TX and WA. Preferred demographics include a population of 30,000 within three miles. Leases running five years, with two options of five years each, are typical.

Lichterman Shoe Co.

dba Dottie's, Lotties,

Spiegel's, Steinmart

Barry Lichterman

712 Crump Boulevard

Memphis, TN 38126

901-774-8920, Fax 774-8929

Shoes

The 67-unit chain operates locations in AR, CO, FL, GA, IN, KY, NC, SC, TN and VA. The stores, selling shoes for the family, occupy spaces of 3,000 sq.ft. in regional malls and strip centers. Growth opportunities are sought for its Spiegel's and Steinmart divisions in CO, MO, MN and TX.

Little Things

Elliot Simon

c/o Kolfax Group

4001 Airport Freeway, Suite 140

Bedford, TX 76201

817-571-6070

Specialty

The 19-unit chain operates locations in AZ, CO, OK and TX. The stores, selling apparel, furniture, books and educational toys for children, occupy spaces of 25,000 sq.ft. to 35,000 sq.ft. in power centers. Plans call for eight openings in the coming 18 months. Expansion will take place in AZ, CA, CO, NV, OK and TX.

Omega Sports, Inc.

dba Omega Sports

Phil Bowman

4118 Spring Garden Street

Greensboro, NC 27407

910-854-0835, Fax 299-1043

Sporting Goods

The 10-unit chain operates locations in NC. The sporting goods stores occupy spaces of 3,000 sq.ft. to 6,000 sq.ft. in power and strip centers. Plans call for as many as three openings in the coming 18 months. Expansion will take place in NC and SC.

Mapes 5 & 10 Stores, Ltd.

dba Mapes 5 & 10 Stores

Paul Carney

224 Haverford Avenue

Narbeth, PA 19072

610-664-0447, Fax 664-8577

Variety

The five-unit chain operates locations in PA. The stores, selling general merchandise and hardware, occupy spaces of 9,000 sq.ft. to 20,000 sq.ft. in downtown store fronts and strip centers. Preferred anchors include supermarkets. Growth opportunities are sought in the existing market. Preferred demographics include a population of 50,000 within five miles earning $40,000 as the average income.

Space Place

Colorado

Denver- Lakeside Center is anchored by Target and Montgomery Ward. The 578,987 sq.ft. project, which is under construction, has spaces from 800 sq.ft. to 40,000 sq.ft. available for lease. The site fronts I-70 and Harlan Street which generate a combined daily traffic count of 82,000 vehicles. Demographics include a five-mile population of 321,295 earning $41,024 as the average income.

For details, contact Ira Shwartz of Sevo Miller, Inc. at (303-721-1000), Fax (721-7249).

Florida

North Palm Beach- Twin City Redevelopment is anchored by Winn-Dixie. The 275,000 sq.ft. project, which is under construction, has spaces up to 80,000 sq.ft. available for lease. The site fronts U.S. 1 and Northlake Boulevard which generate a daily traffic count of 34,450. Demographics include a five-mile population of 126,750 earning $39,530 as the average income.

For details, contact Sam Cantor of Preferred Realty and Management Services, Inc. at (407-394-9797), Fax (361-9533).

Ormond Beach- A 10,300 sq.ft. former Eckerd Drug Store is available for lease. The site is located near Bennigans, The Olive Garden, Steak & Ale, Red Lobster and McDonald's. In Winter Springs- A 6,500 sq.ft. former Blockbuster Video store is available for sublease. The site is located near Albertsons, Winn-Dixie Marketplace, Kmart, Tire Kingdom and Discount Auto Parts.

For details, contact Arnie Sevell of Sevell Duncan Realty Services, Inc. at (407-995-0100), Fax (241-4700).

Michigan

Canton Township- Harvard Square Plaza is anchored by Kroger, Arbor and Old Country Buffet. The 117,025 sq.ft. project has spaces of 2,000 sq.ft., 2,050 sq.ft. and 3,000 sq.ft. available for lease. Up to 5,050 sq.ft. of contiguous space can be assembled. The site fronts Ford Road and Sheldon which generate a combined daily traffic count of 39,000 vehicles. Demographics include a five-mile population of 148,950 earning $52,834 as the average household income. Retailers in the area include Kmart, Meijers and Target. In Westland- Westland Plaza is anchored by Arbor, McSports and Electric Stick Billiards. The 91,000 sq.ft. project has spaces of 2,000 sq.ft., 4,000 sq.ft. and 12,000 sq.ft. available for lease. The store fronts Hunter and Wayne Road which generate a daily traffic count of 37,000 vehicles. Demographics include a five-mile population of 308,612 earning $46,470 as the average household income. Westland Mall is located within the trade area.

For details, contact Robert Hill of Cody Olson, Inc. at (810-745-1900, Ext. 127), Fax (745-1909).

New Jersey

Howell- Howell Friendship Shopping Plaza is anchored by Kmart, Pathmark, The Rag Shop and Rickel's. The 255,000 sq.ft. project has spaces of 1,520 sq.ft., 1,650 sq.ft., 2,755 sq.ft. and 5,200 sq.ft. available for lease. The site fronts Route 9 South and New Friendship Road. Demographics include a 10-mile population of 540,531 earning $47,074 as the average household income. In Marlboro- Cambridge Square Shopping Plaza is anchored by Kmart, ShopRite, Blockbuster Video and TGI Friday's. The 233,000 sq.ft. project has a 2,800 sq.ft. space adjoining Kmart available for lease. The site fronts Route 9 at Union Hill Road. Demographics include a five-mile population of 98,476 earning $79,144 as the average household income. In Toms River- Toms River Mall is anchored by Grand Union, The Rag Shop and Thrift Drug. The 255,000 sq.ft. project has spaces of 1,400 sq.ft. and 3,800 sq.ft as well as 2,000 sq.ft. and 4,641 sq.ft., which can be combined, available for lease. The site fronts Route 37 East at Washington Avenue. Demographics include a five-mile population of 117,500 earning $52,246 as the average household income.

For details, contact Mario Dudzinski of Garden Homes Commercial at (201-467-5000), Fax (467-0654).

Pennsylvania

East Norriton Township- Northtowne Plaza Shopping Center is anchored by Frank's Nursery, T.J. Maxx and Drug Emporium. The 250,000 sq.ft. project has spaces available for lease. The site fronts Route 202 and Alt. Route 422. Also in East Norriton Township- Swede Square Shopping Center is anchored by a supermarket and a pharmacy. The 98,000 sq.ft. project has a 6,000 sq.ft. space available for lease. In Lansdale- Allen-Forge Shopping Center is anchored by Gwyndale Food Market. The project has a 1,600 sq.ft. space available for lease. Demographics include a five-mile population of 107,000 earning $64,000 as the average household income.

For details, contact Kimberly Tornetta or Donald Tornetta of Tornetta Realty Corp. at (610-279-4000), Fax (275-6787).

Virginia

Dale City- Mapledale Plaza is anchored by Giant Food. The 200,000 sq.ft. project has spaces from 900 sq.ft. to 4,373 sq.ft. available for lease. Demographics include a five-mile population of 130,000 earning $68,000 as the average household income.

For details, contact Becky Speegle of Interstate Investment, Inc. at (703-540-1111), Fax (590-2225).

Virginia Beach- Diamond Springs is anchored by Merchants Tire. The 25,212 sq.ft. project has a 6,000 sq.ft. space available for lease. The site is located near Little Creek East Shopping Center. Demographics include a five-mile population of 205,208 earning $39,812 as the average income. Also in Virginia Beach- Princess Anne Shoppes is anchored by Young Masters Tai Kwon Do. The 18,765 sq.ft. project has a 4,380 sq.ft. space available for lease. The site is located near Chimney Hill Shopping Center and Farm Fresh Center. Demographics include a population of 282,214 earning $47,276 as the average income.

For details, contact Mike Zarpas of Robinson Sigma Commercial Real Estate at (804-640-7130), Fax (640-7131).

Who's Opening and Where...

Cobb Theatres (205-591-2323) plans to open an 18-screen movie theater at De Soto Square Mall in Bradenton, FL during Spring 1998. Overall, the company is looking to add 90 screens throughout FL.

Uniway Management Corp. (404-363-6200) plans to open a 10,000 sq.ft. Uniway Catalog Showroom in Rock Hill, SC during October. The company currently operates 17 units throughout the Southeastern region.

Borders, Inc. (313-913-1323) recently opened a bookstore in Palo Alto, CA and is planning to open a 27,300 sq.ft. store at Two Ledgewood Square Shopping Center in Strongsville, OH during the Fall.

Hooters of America, Inc. (770-951-2040) recently opened a 4,600 sq.ft. 228-seat restaurant in Muskegon, MI. It is the company's fifth MI location.

T.G.I. Friday's (214-450-5400) recently opened restaurants in Bankok, Thailand; Istanbul, Turkey; San Pedro Sula, Honduras; Stockholm, Sweden; Dubai, United Arab Emirates; and High Wycombe, United Kingdom. The new openings give the company 65 restaurants in 28 countries.

Jerry's Famous Deli, Inc. (818-766-8311) recently opened an 8,600 sq.ft. restaurant in Westwood, CA and is planning to open a 9,400 sq.ft. unit in Costa Mesa, CA during the first quarter of 1997.