Client Name
MDS Realty - a venture among four private equity firms and hedge funds who collectively purchased the real estate on which various Mervyns department stores are located.
Approximate Transactional Amount
$620 million
Client Background
Our client, MDS Realty, was a venture formed by four private equity firms and hedge funds. MDS Realty acquired the land beneath numerous Mervyn’s department stores and then leased the stores to Mervyn’s, who operated the stores. Mervyns, headquartered in the San Francisco Bay Area, operates department stores in 10 states in the American west, providing a mix of national brands and exclusive house brands. Mervyns stores have an average of 50,000 retail square feet, which is a unique size among mid-tier retailers. Mervyn’s stores are located primarily in regional malls, community shopping centers, and freestanding locations. Founder Mervin Morris has been attributed to inventing the mid-range department store with the opening of their first store in San Lorenzo, California.
Client Situation
MDS Realty sought counsel and assistance in the sale of two large property portfolios and one small group of stores. At the same time the properties were sold by MDS Realty, Mervyn’s would terminate its existing leases with MDS Realty and sign new leases with the new owners of the land. The two large portfolios were purchased by:
- Developers Diversified Realty Corporation (DDR), a publicly traded group of institutional and entrepreneurial investors known as the nation’s leading owner, developer, and manager of market-dominant community centers, in conjunction with Macquarie DDR Trust, a joint venture between Australia-based Macquarie Bank and Developers Diversified; and
- Inland Western Retail Real Estate Trust (Inland), sponsored by an affiliate of The Inland Real Estate Group of Companies, the fifth largest shopping center owner and property manager in the United States.
Primary Goal
The client wanted to get the deals under contract as quickly as possible. However, the client did not want to close until later in the year in order to obtain long-term capital gain tax treatment.
Anticipated Problems
- Levenfeld Pearlstein was asked to negotiate multiple transactions at the same time with three separate groups of purchasers. Concurrently, new leases were being negotiated among Mervyn’s, the purchasers, and LP. Multiple law firms were involved.
- The client wanted to close the sales and enter new leases for approximately 70 stores during a 10-day period.
Service Summary
LP formed two attorney teams to take on this matter, combining the skills of several attorneys, real estate paralegals, and administrative staff. A team approach was important, and the LP mantra of “clients first” would be tested by the complexity and depth of the deals. While the respective real estate attorneys primarily conducted work on the deal, the assistance of attorneys in other service groups, including taxation and bankruptcy, exemplified LP’s interdependent work culture. Work began in April 2005. All the deals were under contract by early summer. Preparations for closing continued through the summer, and the great majority of the deals closed in September 2005. Additional sites were sold in October 2005. Approximately five million square feet of retail space changed hands.
Results
The firm’s experience in large-scale transactional matters allowed the Real Estate & Finance Practice Group to effortlessly perform all tasks in this complicated deal. The interdependency between practice and service groups was essential to getting the deal done quickly.