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Saying Goodbye

The official word from NRDC Equity Partners, which agreed to buy Lord & Taylor for $1.2 billion in late June, is that it will give the storied chain a badly needed makeover and move it back upscale. But the word on the street in the retail business is that the joint venture between National Realty & Development Corp. and Apollo Real Estate Advisors is sure to dismantle the 48-store chain.

“These are real estate people and that's why they are in this transaction,” says Howard Davidowitz, chairman of Davidowitz & Associates, Inc., a New York-based retail consulting and investment firm. “Lord & Taylor as a name is dead. It died 15 years ago.” Indeed, the 180-year-old chain had been in decline for decades under the May Company. Federated Department Stores began marketing Lord & Taylor for sale just four months after completing its merger with May. It is converting most May brands to Macy's with a smattering of Bloomingdales. Lord & Taylor did not fit into that strategy.

Davidowitz believes that NRDC will close anywhere from five to seven stores within the next 12 months and will ultimately liquidate Lord & Taylor assets. The crown jewel is the 611,000-square-foot New York flagship on Fifth Ave., which could be redeveloped into a mixed-use project akin to the Bloomberg Tower or Time Warner Center. Davidowitz estimates that the value of that property alone is one-fourth of the total deal purchase price.

On the record, NRDC President Richard A. Baker says that the joint venture plans to continue operating the chain and has no plans to close any of the locations in the near future. The Chicago-Sun Times, however, reported that American Girl, which has a 40,000-square-foot store at 11 E. Chicago Ave., may already be negotiating to lease a 47,000-square-foot piece of the 141,000-square-foot Lord & Taylor store at Water Tower Place on Michigan Ave. NRDC and American Girl did not return calls seeking comment.

In the case of Lord & Taylor, a gradual shutdown of the venerated chain is likely.

“It wouldn't make sense for them to close the company right now because they would be left with empty buildings,” says Peter Borzak, a principal with Illinois-based Pine Tree Commercial Realty, a retail development firm. “But I think that when you have two real estate companies joining forces to buy a retailer, their interest is in real estate. They must have some ideas on adding value through leasehold interest or ownership.”

Borzak doesn't think that NRDC will necessarily put Lord & Taylor out of operation somewhere down the road. He believes that profitable sale-leaseback arrangements are also possible.

“They may not close all of the [stores down], there could be other ways to make money,” he notes.

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