A joint venture that includes Developers Diversified Realty (DDR) recently bought the rights to handle the disposition of 227 Service Merchandise stores for $235 million.
DDR, which owns and manages 230 shopping centers, has a 25% share in the venture with Lubert-Adler Funds and Klaff Realty LP. The Cleveland-based REIT said it will earn fees for the management, leasing, development and disposition of the bankrupt estate's 12.4 million-sq.-ft. portfolio.
After three years in bankruptcy, Brentwood, Tenn.-based Service Merchandise announced in January that it would go out of business. The retailer — which was founded in Pulaski, Tenn., in 1934 — blamed a poor economy. Analysts blamed Service Merchandise's out-of-date business model.
Noting that Service Merchandise had already closed 150 under-performing stores, DDR Executive VP Dan Hurwitz calls the units that are left top-tier. “In many cases, the buildings are already subdivided and have been renovated,” he says. “It's quality real estate.”
Though declining to release figures, Hurwitz says DDR is “far down the road with a number of retailers on large portions of the portfolio.” Interested tenants hail from a variety of categories, including linens, electronics, sporting goods, crafts, restaurants and ready-to-wear apparel. “Tenant demand is very strong,” Hurwitz says.
He says DDR consulted closely with prospective tenants when working out due diligence issues and the overall economics of the deal.