CoStar's Retail News Roundup: Nov. 1 - 7, 2009

CoStar's weekly column covering expansions, new concepts, store closings, bankruptcies, cutbacks, acquisition, mergers, sales, loans, shopping center development activity, personnel changes, sustainability, green building, and more in retail real estate.

E-mail this article

Print this article

By Sasha M Pardy

November 2, 2009

This week in the Retail Roundup, CoStar reports on expansions or new concepts at Prime Retail and Edible Arrangements; closings, cutbacks, defaults, or bankruptcy news at Movie Gallery and more; acquisition, merger, loan, sale, or IPO activity at USAA, Martinsburg Mall, Vitamin Shoppe, and Rubios; new retail development news in NJ; personnel or corporate announcements at NAI Capital and Sonic; sustainability and green building news at Arby's and Chipotle; and more.

Did you miss last week's CoStar Advisor national retail story, "Q3 Retail Real Estate Report: Not Out of the Woods Yet"? If so, click here to read the story

(Editor's Note: To keep up on happenings and trends in retail real estate, subscribe to CoStar's Retail News Roundup, a weekly column covering retailer expansions and new concepts, store closings, bankruptcies, cutbacks, acquisition, mergers, sales. new shopping centers, personnel changes, and sustainability. Follow this link for access to back issues of the roundup. In addition to appearing every week in the national news and retail news sections of our web site, you may also receive the Retail News Roundup for free via email by requesting to be added to the distribution list by contacting senior editor, Sasha Pardy at spardy@costar.com Also, click here to subscribe to CoStar's dedicated Retail RSS Feed.

EXPANSIONS / NEW CONCEPTS

Outlet Center Retailers Continue to Expand
Baltimore-based outlet center operator, Prime Retail, announced that leasing activity kept up at its outlet centers from mid-September through the end of October. The company reported 30 newly signed leases at its centers across the country during the period, including:

FENDI: 2,300-square-foot store at Prime Outlets San Marcos

Thomas Pink: 2,108-square-foot store at Prime Outlets Orlando

Guess: 5,013-square-foot store at Prime Outlets Florida City

Levi’s: Three stores between 3,300 and 4,500 square feet at Prime Outlets Ellenton, Jeffersonville and Williamsburg

Bose: Two 2,200-square-foot stores at Prime Outlets Grand Prairie and Livermore Valley

Additional merchants signing leases for new outlet center locations include Gucci, Dooney & Bourke, Quiksilver, Rue 21, Beauty Express and Vitamin World, along with eateries including Chicken Now, China Max, Hershey’s Ice Cream, Japan Café, JR Steakery and Tropical Sensations.

Prime Retail is not the only outlet center landlord reporting fairly steady leasing activity throughout this recession. For more information on this shopping center category, read CoStar's recent article: "Outlet Centers Rise to the Top During Recession."

Edible Arrangements Launches Stand-Alone QSR Concept, "Frutation"
National fruit gift basket retail chain, Edible Arrangements, is launching a new stand-alone quick service restaurant concept, dubbed "Frutation." The company has been testing the concept, which offers smoothies, juices, salads, dipped fruits and also takes gift basket orders, as a store-within-a-store format in 20 Edible Arrangements locations for about two years.

The first stand-alone Frutation store opened in Puerto Rico on October 5, and five more are scheduled to open in December. The company expects to ink 50 Frutation franchise agreements in the next three months.

The goal is to open Frutation stores in high-traffic areas located close by to high-performing Edible Arrangements stores. The retailer said it would select Class A "main street" locations for Frutation stores, a step up from the Class B locations it would typically lease for its Edible Arrangements stores.

Edible Arrangements recently opened its 924th store -- it has been growing rapidly through franchising -- opening about 100 stores over the past year alone.

CLOSINGS/CUTBACKS/BANKRUPTCIES/DEFAULTS

Z Gallerie Emerges from Bankruptcy
Home furniture, art and accessories retailer, Z Gallerie, which filed Chapter 11 on Apr. 10, 2009, announced its emergence from bankruptcy on October 27, 2009. The company completed its recapitalization and reached an agreement with Wells Fargo Business Credit on a $22 million exit financing package, all in less than six months.

In late February, Z Gallerie commenced store closing sales at 25 of its stores across the country -- at the time, it operated 77 stores in 24 states. Following these closures, the company today operates 54 retail locations in 18 states, one outlet store and a website.

Also in February, the company said it would downsize its distribution network. At the time, it leased 264,000 square feet within the Greenwood Industrial Park in McDonough, GA. In the emergence announcement, Z Gallerie said it only had a headquarters building and distribution center in Gardena, CA, and creative and buying offices in Berkeley, CA.

Movie Gallery Late on Rent Payments
The country's second-largest brick-and-mortar video rental chain, Movie Gallery, is in default on a high percentage of its rent payments due to landlords, according to Bloomberg. The retailer even has a dedicated toll free number where landlords can inquire about their late rent payments, which is experiencing "very heavy call volume," reported Bloomberg.

The company's chief marketing officer reported that the company may close 150 to 200 more stores by the end of this year -- this is in addition to the 200 Game Crazy stores the retailer closed in September and October and approximately 50 additional store closures this year amongst its Movie Gallery and Hollywood Video brands. Movie Gallery currently operates 2,921 stores; nearly half as many as the 4,600 it operated in July 2007 (since, it filed bankruptcy and emerged in May 2007, going private in a deal with Sopris Capital Advisors and Aspen Advisors).

Reportedly, Movie Gallery is requesting significant rent cuts due to "limited cash flow." It is losing market share to competitors including Netflix and RedBox, among others. The country's largest movie rental retailer, Blockbuster, announced it would close as many as 960 of its stores through 2010.

51 Retail Bankruptcy Filings in October
Chapter 11 Blog, a service that tracks bankruptcy filings nationally, reported at least 51 retail industry bankruptcies during the month of October. The majority listed liabilities below $10 million in their filings, with the exception of six companies listing liabilities between $10 million and $100 million: The Atlanta Rug Gallery of Atlanta; Cheng Kwong Sea Food Market of Massachusetts; Dazlbet Partners, LLC (d/b/a Royal Palm Nurseries) of Florida; Long Rap Inc. (d/b/a/ Up Against the Wall) of the District of Columbia; Super 88 Supermarket II Inc. (d/b/a/ Super 88 markets) of Massachusetts; and Zupek's Inc. (d/b/a The Original Irvine Ranch Market) of California. Overall, the majority of filings were related to the automobile and home/building supply industries. States with the most filings were Texas and Florida, with eight each.

ACQUISITION/MERGER/SALE/LOAN/IPO ACTIVITY

USAA Acquires 80% Interest in Regency Centers Portfolio
USAA Real Estate Company has acquired a partial interest in a portfolio of neighborhood shopping centers owned by Jacksonville, FL-based retail REIT, Regency Centers (NYSE:REG). USAA acquired an 80% interest in the portfolio, while Regency maintains 20% ownership.

The portfolio involved consists of eight grocery-anchored centers totaling 813,193 square feet with locations in the Los Angeles, San Francisco Bay, Houston, Dallas/Ft. Worth, Orlando, Atlanta and Raleigh/Durham markets. USAA reports the portfolio is 94% leased and its anchor tenants generate 66% of total rent. The portfolio's 153 tenants including Kroger/Ralphs, Safeway, Publix Super Markets, the United States Postal Service, Longs Drugs (CVS), Hallmark and Subway, among others.

Specific financials of the transaction, as well as the identity of the shopping centers involved, were not disclosed. In Regency's third quarter conference call, however, the REIT said it would realize $104 million in net proceeds from the transaction.

Martinsburg Mall May be Sold to Mountain State University
Mountain State University of Martinsburg, West Virginia is set to buy the Martinsburg Mall, according to The Morning Herald. The 556,000-square-foot regional mall, which is located just off I-81 on Foxcroft Avenue in Martinsburg, was foreclosed on early this year when the Lightstone Group was delinquent on debt payments for months. Jones Lang LaSalle Retail was appointed as receiver of the mall in February 2009.

The University intends to continue to operate the mall primarily as a retail center, but said it would use 13,713 square feet of space within the mall for educational purposes. The mall is anchored by Bon-Ton, JC Penney, Sears, and Wal-Mart. According to CoStar Group, the mall is currently has 8.2% of its space available for lease.

Additionally, the University has requested to build classroom and office space, as well as a student residence mall and outdoor recreation area, on 9.19 acres of undeveloped land adjacent to the mall.

The Lightstone Group acquired the mall from PREIT as part of a $108.5 million four-mall portfolio transaction in September 2004. An approximate $27 million sale price was assigned to the Martinsburg Mall at the time.

Vitamin Shoppe I.P.O. Well-Received
On October 28, 2009, Vitamin Shoppe (NYSE:VSI) launched its $155 million initial public offering -- stock for the vitamin retail chain was priced at $17.00 per share. This is the first public offering of a retail store chain since Lumber Liquidators went public in November 2007.

According to the Wall Street Journal, Vitamin Shoppe's I.P.O. was well received, closing at $17.95 per share on the first day of trading. Reportedly, all 9.1 million shares were sold at a price above its expected $14 to $16 range. Of the total shares sold, 1.4 million were from private holders, Vitamin Shoppe founding Horowitz family and private equity firm, Blackstone Group; so those proceeds won't benefit the company.

Vitamin Shoppe's net sales increased 12% and its earnings increased 56% during the first six months of 2009, compared to the same period in 2008. As of September 25, 2009, Vitamin Shoppe operated 434 stores in 37 states and the District of Columbia. It also has a new "green" concept chain currently in a test period -- dubbed "Eco Shoppe."

Rubio's Fresh Mexican Grill Rejects Buyout Offer
Carlsbad, CA-based Rubio's Restaurants (Nasdaq:RUBO) announced that it rejected an unsolicited offer to be acquired for $8.00 per share by a group including Alex Meruelo and his affiliates and Levine Leichtman Capital Partners. Simultaneously, Rubio's said it commenced a process to evaluate the company's strategic alternatives and has hired Cowen and Company, LLC to provide financial advice and assist the Board with this process.

Rubio's stock price has been improving since March of this year, closing at $7.30 per share the day before this announcement was made. Rubio's operates, licenses or franchises more than 195 fast casual Rubio's Fresh Mexican Grill restaurants in California, Arizona, Colorado, Utah and Nevada.

NEW SUPPLY

Advance Realty Advancing on Riverbend District TOD
With infrastructure work for its first phase about 50% complete, Advance Realty announced that construction is moving ahead at the Riverbend District. The project is the redevelopment of the former Harrison MetroCentre in Harrison, NJ, which was declared a Brownfield.

The first component of the massive mixed-use project is the 25,000-seat Red Bull arena, planned to open in spring 2010. Following this, Phase I of vertical construction on the Riverbend District is scheduled to begin in 2010 and will feature more than 800,000 square feet of retail space, including an anchor grocery and retailers, a 16-screen cinema and notable restaurants; a 175-room hotel and a 350-room hotel with 25,000 square feet of conference space; a wellness center; corporate and boutique office space; and approximately 1,900 residential units.

Considered a Transit Oriented Development (TOD), the Riverbend District is within close proximity to multiple modes of mass transit, including N.J. Transit, Amtrak and a centrally located, onsite PATH station that will benefit from a $180 million renovation program to improve service, allowing easy access to Newark Penn Station. The district is also only 15 minutes by train to Manhattan, is highly accessible by all major roadways in Northern New Jersey, and is just minutes from Newark Liberty International Airport via rail service or car.

PERSONNEL ANNOUNCEMENTS

NAI Capital Hires Retail SVP in Encino
John Raudsep has joined the Encino, California office of NAI Capital as a senior vice president. With more than 25 years of commercial real estate brokerage and business development experience, Raudsep will specialize in retail tenant, landlord and investor representation at the firm.

Prior to NAI, Raudsep worked for ReMax Commercial, where he negotiated more than one million square feet of retail property investment transactions in Florida, Georgia, Texas, Colorado, Arizona and Nevada. Prior to his career in real estate, Raudsep led numerous healthcare reform projects worldwide and domestically working for Bristol-Myers Squibb and WellPoint Health Systems.

Raudsep graduated with a BS in Mathematics from the University of Texas at Austin, has a MS in Statistics from Iowa State University and a MBA in Finance from UCLA.

Sonic Drive-In Founder Passes Away
Troy N. Smith Sr., the founder of the Sonic Drive-In restaurant chain, passed away on October 26, 2009 at the age of 87 following a brief illness.

Smith joined the Army Air Corps in 1943 and after returning from World War II, drove milk and bread trucks while saving money to start his own business venture. From 1948 to 1955, he tried his hand in the operation of various restaurant concepts, landing at the Top Hat root beer stand, where he is said to have pioneered the drive-in restaurant system with angled and covered parking as well as an intercom system. By the early '60s, Smith had opened three more Top Hats with a partner and then franchise interest started rolling in and the chain's name was changed to "Sonic." Starting out in small towns in Oklahoma, Texas, Kansas and Arkansas, there are now nearly 3,600 Sonic Drive-Ins across 42 states.

Smith was a generous donator to the University of Central Oklahoma -- among his donations was $3 million worth of stock in the Sonic Corporation.

SUSTAINABILITY / GREEN BUILDING

Arby's Restaurant Earns Silver LEED Certification
A new Arby's restaurant that opened October 23, 2009 in Magnolia, Texas, recently earned Silver-level LEED certification from the USGBC. The building is the only Silver LEED-certified restaurant in Texas listed on the USGBC's website and is the first restaurant Arby's has built to become LEED-certified.

"Green" elements of the building include Energy Star-certified kitchen equipment, LED lighting with an energy-efficient motion sensor system, low-flow toilets, tankless water heaters and energy efficient HVAC. Additionally, Arby's utilizes "green power" for the building, meaning at least 35% of its energy comes from renewable energy sources. In construction, Arby's used low-emitting wall treatments and flooring and the interior décor from flooring to upholstery contains recycled materials. This Arby's restaurant has a light-reflective roof and the store front includes solar glass and thermally-broken aluminum. Other features including parking for fuel-efficient vehicles, native landscaping, and recycling programs.

Chipotle Testing Solar Panels at 75 Restaurants
Chipotle Mexican Grill announced plans to add solar panels to 75 of its restaurants over the course of the next 12 months. The Denver-based quick service restaurant chain said it is partnering with Houston-based Standard Renewable Energy on the project. The company expects enough panels will be installed to produce 500 kilowatt hours of electricity in total, but the goal is to figure out the best way to reduce energy usage during peak hours at all of its restaurants. Solar installations are already underway at restaurants in Denver, Austin, Dallas and San Antonio.

More Inland Empire Commercial Real Estate News Stories:

Next Steps

800-204-5960

Email Us

®

# 1 Commercial Real Estate Information Company