CHICAGO MART GROUP EYES POSSIBLE MOVE
Byline: Nancy Brumback
CHICAGO — Some 200 women’s apparel manufacturers and sales reps with showrooms at the Chicago Merchandise Mart’s Apparel Center are looking elsewhere for showroom and exhibit facilities, but the Apparel Center management says it’s confident the tenants will stay.
The Apparel Center Tenants (ACT), an association of tenants, has retained Burton K. Friedman, executive vice president of the real estate firm Capital Associates, to negotiate with city developers for a new site to serve as the apparel trade’s home, with about 200,000 square feet for showrooms and 100,000 square feet of exhibit space.
The plan comes on the heels of the purchase of the Merchandise Mart this year by Vornado Realty Trust from the Kennedy family, which owned the complex for over 50 years. But the tenant faction indicated unrest had started before the sale.
“It’s true, it’s big time. We are looking for better treatment,” said Kendall Larned, vice president of Dressed 2 Kill, one of the Apparel Center’s largest tenants, with 4,200 square feet in three showrooms for its lines, which include Fitigues and Garfield & Marks. Larned cited “lack of enthusiasm from the owners, lack of marketing by the building, the bureaucracy and red tape to get the slightest thing done and security” as key issues in the tenants’ proposed move. “I haven’t heard ‘we want you’ from anyone in the building.”
More circumspect, Jeffrey Newman, owner of the rep firm Second City Sales and current president of ACT, said, “We’re evaluating our future with the Mart as well as with other developments, and have hired Burt Friedman to advise us.”
A spokeswoman for the Apparel Center said there were just over 300 apparel tenants in the building plus about half a dozen nonapparel tenants and some retailers.
Christopher Kennedy, executive vice president of Merchandise Mart Properties, said the Apparel Center intends to “fight for the business tooth and nail, and we intend to succeed. We’re concerned, but we’re confident.”
“The Apparel Center has never had a better year than this one,” he added, citing the national status of the bridal and men’s wear shows and the strong regional women’s and children’s markets. “Folks in the apparel industry are looking for a deal, and there isn’t a better deal out there,” Kennedy said.
He argued that new-building developers will be reluctant to take on the apparel manufacturers and reps as tenants, while the Chicago center, unlike many apparel centers, has been profitable, he claimed.
Among the reasons developers may be reluctant to take on apparel tenants, Kennedy cited “the question of the credit worthiness of tenants. Bad debt is a consistent problem.” He also said developers can get higher rents from other types of tenants; apparel has a “declining tenant base” with many reps approaching retirement age; the trade shows carry high fixed costs for meeting planners, registration and such that the Mart can afford, because it has 30 major trade shows in various categories a year; and that rapid tenant turnover in the showrooms leads to high remodeling costs.
Developers “can’t finance a real estate venture with the apparel tenants, while we don’t need to,” Kennedy said. Apparel tenants are looking for short leases, limited square footage and showroom frontage that requires more corridors — nonrentable space — than other tenants, he added. “They want under 600 square feet, have no credit, won’t personally guarantee the lease and half want to sign a one-year lease,” he said.
Why, then, does Kennedy want these tenants? “Part of it is emotional. They are friends of ours,” he replied, while they also help with trade show economies of scale as part of those 30 shows a year.
Finally, Kennedy argued trade show competition is increasing, while consumer spending on apparel is down, and specialty stores, whose buyers attend those shows, are losing market share. “Does some new developer want to take on us and all these other trade shows?” Kennedy asked.
The mart executive further pointed out that this is the third time in 10 years tenants have threatened to pull out of the Apparel Center.
Friedman said the Apparel Center “has lost its identity” with leases to large corporations including Bank of America, Fox Sports and Ameritech for office space.
Some tenants indicated they expect that trend to continue given current leases being offered. One long-term tenant was recently given the option for a short-term lease; another, whose lease expires in September, said he has yet to hear from the Apparel Center about renewal.
Kennedy denied that the Apparel Center has changed its leasing policy and added space has “never been taken from the apparel industry and given to anyone else.”
Friedman noted that the apparel tenants would like to control their own exhibit space to schedule shows as they wish and to rent that space for other, apparel-related shows as well, making it a profit center. “The Merchandise Mart is not taking these tenants seriously, but this time, they’re going to do it. They’re moving.”