Store fate is raising questions

By Michael Yeomans
TRIBUNE-REVIEW
Saturday, August 2, 2003

Questions linger in the wake of May Department Stores Co. decision to sell or close its Downtown Lord & Taylor store. Among them:

Who will buy the building? And, would the city’s Urban Redevelopment Authority approve another so-called “soft loan” in the future in order to lure another retailer into the space?

In the case of the building, speculation abounds, but no clear favorite has emerged. Some experts say a relocation of the Downtown Saks Fifth Avenue across Smithfield Street to the larger Lord & Taylor space makes sense. Others have said the city could take another crack at luring two other upscale retailers — Nordstrom and Neiman Marcus.

May Co. spokeswoman Laura Bryant said Friday a meeting has been arranged between the company and city officials to begin a dialogue over what will become of the building, a landmark structure. In the meantime, it is open for business as usual.

On the question of financing, it appears the city would be willing to offer some type of incentive package for a new retailer.

Lord & Taylor received an $11.75 million “soft loan” from the URA as an inducement to open a store in the former Mellon Bank headquarters building at Smithfield and Fifth avenues, which it did in November 2000.

Under the agreement, Lord & Taylor would only have to begin paying that loan back once sales reached $35 million, at which point it would have to pay 2 percent of gross sales over that $35 million figure. After five years, or in November 2005, the company could close the store without repaying the loan.

The Lazarus-Macy’s store on Fifth Avenue received a similar incentive in 1998, obtaining an $18 million loan from the Pittsburgh Development Fund in return for an agreement to operate for five years, meaning the store could close at year’s end with the loan not being repaid, since it, too, has not reached its sales trigger, $41.7 million.

“If the mayor’s office wants us to assist in finding a new tenant-owner for the Lord & Taylor building, we would do so,” Jerry Dettore, deputy director of the URA said yesterday, declining to comment on whether the URA’s efforts would include soft loans.

Aaron Stauber, managing director of Rugby Realty, who participated in the redevelopment of the former Gimbel’s department store on Sixth Avenue, said Lord & Taylor has several options.

One possibility is to stay open two more years, if it doesn’t find a buyer before that, then shut the store down, without paying back the loan.

Another is to negotiate a partial payment of the loan with the URA, and shut the store down.

Yet another option is to sell or give the building to the URA as a payoff of the loan and take a write-off on the asset.

The building has 196,000 square feet, including 135,000 square feet of selling space on four floors. It is valued at $27.5 million by the county, roughly the amount of money spent by May Co. to renovate the former bank building after paying Mellon Financial Corp. $9.25 million for the structure in 1999.

Stauber said the most logical result is for Saks Fifth Avenue to relocate from its Oliver Street location to the Lord & Taylor building.

This would fulfill a long rumored desire for Saks to expand its store here in a better location, while not introducing a new competitor to the market for May Co.

Hugh “Herky” Pollock, executive vice president of CB Richard Ellis Pittsburgh, agrees.

“For this to work, the city would have to structure a deal by which it would purchase Saks’ current building,” he said.

“We’re always evaluating our store base and exploring opportunities for expansion where appropriate,” said Saks spokeswoman Julia Bentley.

Margaret “Midge” McCauley of Philadelphia-based Kravco, whose Downtown Works division is assembling a plan for redeveloping the city’s Fifth and Forbes corridor, said her group has not been invited into the talks between May Co. and the city, but she said Kravco stands ready to help.

“We have an excellent relationship with the May Co.,” she said, adding that her group has had talks in the past with Saks, but none recently.

When asked if Kravco would possibly be a buyer of the Lord & Taylor building, McCauley said, “That hasn’t been discussed.”

McCauley said there are several incentive tools Kravco could employ to lure tenants to the Fifth and Forbes area, but she said until lease agreements are negotiated, it’s too soon to discuss specifics.

She said any large retailer considering the Lord & Taylor site would likely request some incentives, but she said they would already have incentive enough in a “beautiful building that has already been (remodeled)” only three years ago.

What could likely be ruled out for the building, Stauber said, is a conversion into offices, which would be difficult and expensive. He said it would likely be cheaper for someone looking for office space to build their own building from the ground up for less money.

He also said it is unlikely it would lease the building, especially to a competitor to Kaufmann’s, which May Co. owns across Smithfield Street.

The thing that astounded Stauber is the abysmal sales record reported by Lord & Taylor, which the URA said was less than $10 million in 2002 — about a quarter of what would have triggered repayment of the URA loan.

Stauber said the Burlington Coat Factory, in the basement of former Gimbel’s building that his firm redeveloped, does more sales than that in a smaller store selling cheaper merchandise.

He said Lord & Taylor likely presented the city credible per-square-foot sales numbers from its existing stores to justify the loan trigger amount. He said if the URA does similar type deals in the future, it needs to be more conservative in setting the trigger figure.

Or even better, he said, instead of an all-or-nothing trigger amount, the URA could adopt a tiered repayment plan that would kick in at lower levels of sales.

Tribune-Review reporter Sam Spatter contributed to this story.

Michael Yeomans can be reached at myeomans@tribweb.com or (412) 320-7908.

This article appeared in the Pittsburgh Tribune Review © Pittsburgh Tribune Review