NEW YORK Another victim of the country's shattered retail market, popular discount fashion store Filene's Basement has filed for Chapter 11 bankruptcy protection, and has struck a deal to sell 17 of its 25 stores -- including its flagship destinations in Boston and New York -- to Crown Acquisitions and The Chetrit Group for $22 million.
The writing has been on the wall for the century-old Filene's for quite some time. The bankruptcy filing comes just two weeks after Retail Ventures Inc. sold Filene's to an entity formed by the Buxbaum Group, citing the chain's considerable liquidity challenges. Even before the change in ownership, 11 Filene's locations in what had been a 36-store portfolio were shut down due to poor performance and the U.S. retail market's ongoing struggles.
As for the planned sale of 17 of Filene's 25 stores to Crown and Chetrit, the deal cannot be solidified until the closing of a Bankruptcy Court auction where the assets, including the eight stores that the partnership is not expected to buy, will be up for grabs to the highest bidder. The stores, located in major metropolitan locales in the Northeast and Midwest, consist of an average of approximately 30,000 square feet of selling space. If all goes as expected, the auction will take place in about five weeks. Crown and Chetrit have already asserted that, under their ownership, the stores would not be liquidated and would not be burdened by bank debt. Both companies have substantial experience in the retail fashion business and are owners of some of the most well known commercial real estate properties in the nation; Crown's assets include interests in three World Trade Center towers, and the Willis Tower, formerly the Sears Tower, is among Chetrit's holdings. The partnership's plan for Filene's includes bolstering the successful stores with a cash infusion and opening new stores in coveted areas.
In the past few months, numerous retailers have been forced to turn to bankruptcy in one form or another as a result of the current economic climate. The list runs the gamut. Having filed for bankruptcy in November of last year, electronics chain Circuit City finally closed the last of its remaining 567 stores in March. Ritz Camera filed for bankruptcy protection in February and announced it would shutter 300 of its stores as part of the reorganization. Also in February, home furnishings and jewelry retailer Fortunoff turned to Bankruptcy Court. The bloodbath, however, has not been limited to chains; retail real estate firms have had to face or fend off bankruptcy, too. General Growth Properties Inc., the second-largest retail REIT in the nation, succumbed to its financial challenges and went the Chapter 11 route in April, after having failed to attain forbearance from creditors on $2.25 billion in debt.
With no clear end in sight to the retail market's severe slump -- Marcus & Millichap Real Estate Investment Services predicts the national retail vacancy rate will jump 250 basis points this year from 8.4 percent at the close of 2008 to 10.9 percent -- and with the economy still in shambles, more names will likely be added to the retail bankruptcies list before the sector recovers.