When Syms Corporation sought to buy the struggling Filene's Basement in 2009 for $62.4 million, it partnered with an engimatic building owner that is no stranger to troubled retail: Vornado Realty Trust.
The publicly traded real estate investment trust has had a long relationship with chain stores, outlasting - and in some cases, purposely liquidating - several brands. And after Syms declared bankruptcy on Wednesday, Vornado will likely remain unshaken, with perhaps the biggest impact of the liquidation being Filene's vacating a retail space Vornado owns in Union Square in New York.
Vornado's resiliency came after Steve Roth, now Vornado's chairman, realized that the true value for some businesses is the real estate they occupy. Vornado was originally the principle owner of discount store Two Guys, and as sales began fading in the 1970s, Roth fought its board to shutter the stores and sell them off, as Boston Magazine detailed. He would prevail, and the strategy of emphasizing bricks and mortar over racks and shelves has continued, propeling Vornado's growth.
Roth's next prize would be Alexander's, a storied New York department store chain that Vornado took over in 1992 and liquidated, leaving its headquarters at 59th Street and Lexington Avenue vacant. In a demonstration of supreme development patience, Roth held off on pursuing various development offers until over a decade later, when Bloomberg LP agreed to be the anchor tenant and the site became the Bloomberg Tower, a 1.4 million square foot skyscraper at 731 Lexington Avenue that also houses offices, retail space and luxury condos at One Beacon Court. César Pelli designed the shimmering structure, which spans an entire city block and features a curving glass facade on one side. It has been immensely profitable, brokers say.
Buit at another long-stalled site, Vornado's willingness to let its property sit idle met with some local criticism. In 2006, the company bought 426 Washington Street in Boston, coincidentally the old Filene's Basement headquarters, which was sold by Macy's predecessor. Vornado demolished the old building and had plans for a new tower, but left the site barren. Boston Mayor Tom Menino called Vornado arrogant and threatened to seize the property through eminent domain last year after Roth suggested that he had deliberately prevented construction, possibly in an attempt to retain subsidies, as the Observer reported. It remains inactive a year later.
Recently, Vornado partnered with another huge landlord, the Related Companies, to take over the Virgin Megastore chain. They subsequently closed Virgin's U.S. stores, including its massive locations at New York's Union Square South and 1540 Broadway in Times Square -- buildings that Related and Vornado own, respectively. As a Vornado executive told Reuters, Virgin paid a fraction of the market-rate rent in Times Square -- $54 per square foot, compared to $700 per square feet. Thus, by closing the stores and re-leasing them, Vornado and Related would achieve far greater rental profits. The Union Square store, owned by Related, has since been split to accomodate Nordstrom Rack, Duane Reade and Citibank. Vornado's Times Square space is occupied by Forever 21.
Vornado's focus on profits has led to robust stocks - shares were trading above $80 on Wednesday. The real estate company also has significant stakes in Toys R Us, JCPenny and Sears, retailers that appear much better off than Filene's and Syms. A spokesman for Vornado said the firm had no immediate comment for this article.
Syms is seeking to retain the brokerage Cushman & Wakefield to dispose of its real estate portfolio, which totals 46 stores in the country. A Cushman spokesman had no immediate comment.
Syms had appeared to be opening a new store at 34,000 square feet at 530 Fifth Avenue in Manhattan, with asking rents of $400 per square foot, according to Crain's, but pulled out of the deal. If liquidation moves forward, the company will also close an upper level Filene's store at Vornado's 40-52 Union Square South. Syms and Filene's also have a combined store at 2222 and 2228 Broadway, and Syms' 42 Trinity Place could also be sold as a development site, with air rights of 230,000 square feet.
Meanwhile, Vornado will no doubt be contemplating its next retail move.
Contact Roland Li at email@example.com.