Discount giant Dollar Tree and Five Below have emerged as the top takers for Party City store leases, but hundreds of the chain's brick-and-mortar locations have so far failed to attract bidders in its bankruptcy.
Chesapeake, Virginia-based Dollar Tree successfully bid on 148 Party City leases, according to a document filed with the U.S. Bankruptcy Court for the Southern District of Texas in Houston. Dollar Tree was followed by Philadelphia-based teen discounter Five Below's successful bids for 44 of Party City's leases, according to an analysis by Bill Read, executive vice president at the brokerage Retail Specialists.
At the bankruptcy auction there were bids for about 250 stores. But A&G Real Estate Partners had put nearly 700 leases — over 400 more than received bids — up for auction on behalf of Party City, the Woodliff Lake, New Jersey-based retailer that's liquidating after filing for Chapter 11 bankruptcy protection in December.
The auction results indicate that even though U.S. retail space is scarce, with a 4.1% vacancy rate, not every vacant or available brick-and-mortar location is going to quickly find a new tenant. The process is also providing a glimpse of the retailers looking to move into new space that had fit the real estate criteria of Party City.
According to Retail Specialists, following Dollar Tree and Five Below, those with the most winning Party City lease bids were: landlords, 16; Cavender's, 15; Rack Room Shoes, nine; Books-A-Million, five; Barnes & Noble, La-Z-Boy and Zurchers Merchandise, four each; and Burlington Stores, two.
About 40 of the leases were for stores in California and just over 30 were in Texas.
Late last week Party City announced the completed lease-auction process for "a significant portion of its real estate lease portfolio." That had resulted in roughly $14.5 million of gross proceeds, "with the potential for additional value to be generated" because "efforts to monetize remaining leases are continuing," according to the retailer.
A hearing has been scheduled for Feb. 26 to receive court approval of these sales.
"In many cases, there was a backup bidder and if the successful bidder fails to perform, the backup bidder is awarded the property," Read said on LinkedIn. "As with all bankruptcy auctions, it's not done [until] it's fully court approved."
Party City, A&G Real Estate, Dollar Tree and Five Below didn't respond to emails from CoStar News on Monday seeking comment.
But in its statement, Party City also said it had successfully completed auctions of substantially all of its intellectual property and related wholesale operating intangible assets to New Amscam. That company, an affiliate of Ad Populum, was the winning bidder for the Party City brand and related Amscan operating assets.
New Amscan's prevailing bid, with a net value of $20 million that includes of $16 million in cash and additional consideration, represented twice the value of its "stalking horse" bid heading into the auction, according to Party City.
"As previously announced, Ad Populum intends to lead a transformation of the Party City and Amscan brands, leveraging its strengths in sourcing and distribution to preserve and build upon [Party City's] legacy in the multibillion dollar party supply industry," Party City said.
Ad Populum is the largest producer of pop culture goods and experiences, targeting consumers including baby boomers and Generation Z. Its roster of brands includes NECA, Kidrobot, Wizkids, Chia Pet, Rubies, Smiffys, Enesco, and Graceland.
As for the store leases, Dollar Tree and Five Below each acquired a significant number of “designation rights,” according to Read.
"In the old days, you bid on a lease, and you were either the high bidder and won or you lost," he posed on LinkedIn. "In today’s world, you bid for the designation rights of the lease. The major difference in my opinion is the acquiring retailer now has a little leverage to redo some of the lease term. If the landlord says no, then the purchaser of the designation rights can now decide to keep the lease per the existing terms, sell the lease to others or simply reject the lease."
This has happened at lease auctions for both 99 Cents Only and Big Lots, according to Read.
For the record
Paul, Weiss, Rifkind, Wharton & Garrison, and Porter Hedges, are serving as legal counsel. AlixPartners is serving as restructuring adviser. Hilco Streambank and Gordon Brothers are collectively serving as intellectual property adviser. A&G Real Estate Partners is serving as real estate adviser. Gordon Brothers is serving as store closing consultant to Party City. DLA Piper is serving as legal adviser to Ad Populum.