Bankrupt Filene’s Basement Assets Snapped Up by Men’s Wearhouse in $67M Auction

Clothing retailer Men’s Wearhouse has emerged victorious from a feverish nine-hour auction of assets belonging to off-price chain Filene’s Basement, which fell victim to the retail market’s downward spiral and filed for Chapter 11 bankruptcy protection in early May, just two weeks after its purchase by Buxbaum Group affiliate FB Acquisition II. Acting through its affiliate, K&G Acquisition Corp., Men’s Wearhouse put forth the winning bid of $67 million for 17 to 20 of Filene’s store leases, as well as the leases on the company’s Massachusetts corporate headquarters and distribution center, its Maryland storage facility and– possibly most important–the Filene’s Basement trade name. Men’s Wearhouse’s bid also covers inventory from all 25 existing Filene’s stores, and, on the down side a reserve of $5 million to address potential litigation involving Filene’s lease for its flagship store at Boston’s Downtown Crossing redevelopment project, which is presently at a standstill. In addition to the downtown site, the 20-property lease portfolio includes four other locations in Massachusetts; five stores in New York, two each in Illinois, Maryland, Ohio and Washington, D.C.; one in Florida; and another in Georgia. On average, the stores feature approximately 30,000 square feet of selling space. Men’s Wearhouse presently has a portfolio of 1,284 stores encompassing over 7.1 million square feet.  As for the Filene’s locations not included in the lease grouping, their doors are scheduled to shutter by the middle of this month.  Men’s Wearhouse faced serious competition in the auction. An affiliate of developer Crown Acquisitions–which offered $22 million for 17 stores minus their inventories in a previous stalking horse–vied for the assets, as did a partnership involving discount clothing retailer Syms and Vornado Realty Trust, which owns the stalled Downtown Crossing project along with Gale International. Alan Cohen, Filene’s chief restructuring officer, noted in a prepared statement that, with the inclusion of inventories in the asset sale, he had expected bids to max out in the $40 million-range.  Filene’s is a veritable institution in Boston and has long been a highly coveted retail destination across the Northeast. However, while some discount retailers have managed to keep their heads above water during the economic downturn and the frozen credit markets, Filene’s hasn’t fared so well. But, given the severely dire state of affairs, even failures among discounters really come as little surprise. Cobwebs at shopping destinations tell the story. According to a recent report by real estate services firm Grubb & Ellis, the average vacancy rate for neighborhood and community shopping centers hit 9.6 percent in the first quarter, a 60 basis points jump from the previous quarter, and at malls, the 7.9 percent first quarter vacancy rate marked the highest vacancy rate for these properties so far this decade.  Undesirable statistics notwithstanding, perhaps the timing is right for Men’s Wearhouse to make a go of it with Filene’s. As per Grubb & Ellis, the current recession, the longest of the 11 post-war slumps, may be close to bottoming out, and hints of a recovery could appear as earlier as the fourth quarter. Also, it could be that Men’s Wearhouse is in a position to navigate the frigid waters. While Men’s Wearhouse’s first quarter profit of $5.3 million was nearly half that of the first quarter of 2008, profit still exceeded analyst expectation. If all goes as planned, the company will keep the Filene’s basement stores open and save about 1,600 jobs.  The Men’s Wearhouse bid for the Filene’s assets is subject to approval by the Federal Bankruptcy Court in Delaware, which is scheduled to rule in a hearing June 10.  Men’s Wearhouse and Filene’s were contacted for this article; both declined to comment.