Vornado’s Toys-R-Us Real Estate Play
Sep 20, 2006 1:45 PM
A little more than a year after a trio of investors bought the struggling Toys ‘R’ Us chain for $6.6 billion, they have made their long-anticipated move to squeeze some value from the company’s real estate assets.
Last week Vornado Realty Trust, one of the three partners (Bain Capital and Kohlberg, Kravis, Roberts & Co. are the others) agreed to purchase up to 44 previously closed stores for up to $190 million. These properties comprise 1.8 million square feet and are primarily located in eight east coast states, Texas and California. Of these, 26 are leased or subleased to other retailers and 18 are currently vacant; 21 are owned, eight are ground-leased and 15 are space leased.
Vornado didn’t announce plans for the sites, but it is spinning the properties into a new subsidiary: Vornado Surplus 2006 Realty LLC, in a move that hearkens back to Vornado’s roots. In the mid 1990s, it bought Two Guys and Alexander's, shut down both chains and converted them to realty companies and redeveloped or sold off the real estate over a period of several years—which is what observers think Vornado has in store. The locations Vornado is getting are in dense markets with few opportunities for greenfield development.
Vornado did not return calls seeking comment.
The biggest question was not why Vornado, a Paramus, N.J.-based REIT with 58 million square feet of commercial real estate assets, made the move—which analysts predicted the day the deal was announced--but why it took so long.
“My guess is that when you have three partners at the table, doing anything is not that simple,” says Howard Davidowitz, chairman of Davidowitz Associates Inc., a national retail consultant and investment banking firm. (Davidowitz has served as a consultant to Vornado in the past.) “When [Vornado Chairman and CEO] Steven Roth does his own stuff he just sits there and makes his calls and that’s the end. But here things are a little more delicate.”
The new owners have been busy on other fronts, implementing a strategy to shrink the U.S. store count, grow the international business and expand the Babies ‘R’ Us sub-chain. The investors also recently brought in former Target Corp. vice chairman Gerald Storch as CEO At Target, Storch managed supply chain operation, technology services, financial services, and Internet divisions. The company has also formed a series of new strategic partnerships to improve its logistics, and re-think its online strategy. It also hired Ron Boire, Best Buy's former global merchandising manager, to bring the chain's offerings more in line with the digital age.Acceptable Use Policy blog comments powered by Disqus
