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DDR joint venture buys designation rights for Service Merchandise stores

A joint venture that includes Developers Diversified Realty (DDR) bought the right 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 joint 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 worsened by the events of Sept. 11.

But industry observers say Service Merchandise made key mistakes that hastened its downfall. They cite the retailer’s out-of-date business model, which until just recently focused mainly on catalog sales, and its failure to convey a coherent brand message to consumers.

In a statement, Scott Wolstein, DDR’s chairman and CEO, described the transaction as "a natural fit to our core business." He said DDR will work closely with its national tenants to help them find opportunities in the portfolio.

The transaction is expected to close sometime today. The U.S. Bankruptcy Court in Nashville announced final approval of the deal March 16.

-- Staff and wire reports

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