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FEATURE ARTICLE, MAY 2008
DISPOSITION DYNAMO
DJM Realty has made a business out of trimming stores for retailers.
Brian A. Lee
Unlike most shopping errands to your local retailer, the business of retail real estate is not a seamless thing. There are core and non-core assets, lease contracts that no longer make good business sense, and the need to manage market swings by reducing one’s portfolio of stores.
As you can imagine, this operation is much more complex than returning that unwanted sweater. It takes a company with outstanding retail knowledge and legal expertise as well as extensive market relationships to help a retailer trim the real estate fat and stay quick on its feet. That company is DJM Realty.
“It’s our actual understanding of the client’s real estate portfolio, it’s our diversified experience, it’s having the ability to get creative and also having the ability to provide capital to resolve a situation,” says Andy Graiser, co-president of the Melville, New York-based company.
Real estate disposition is the firm’s core business, but it also does acquisitions, valuations and unique capital solutions, all the while leveraging unsurpassed industry experience and a widespread, established business network. Co-founded in 1991 by Graiser and Emilio Amendola, DJM Realty established its name early on by helping many small retailers avoid bankruptcy through out-of-court settlements. At the time, the only way troubled retailers could close stores was by filing for Chapter 11. In 1996, DJM Realty was retained by a healthy 1,500-store retail chain.
“We negotiated the retailer out of 300 leases as well as renegotiated leases for about 550 stores,” says Graiser. “This deal put us on the map.”
During the following 5 years, the company performed a lot of bankruptcy work for ailing retailers. The shift to working with non-distressed retail chains began in 2001 when a retail giant gave the company its really big break.
“We represented Sears on 95 Home Life locations — we negotiated out of all the leases and located many replacement tenants,” says Graiser. “In the last 3 years, I’d say probably 75 percent of our work has been with healthy retailers, disposing of surplus real estate and renegotiating leases. Additionally, we’ve been working with private equity firms and purchasing retailer chains.”
Depth & Breadth of Services
With DJM, it’s not just the company’s know-how but whom the company knows. The firm’s seasoned executives brought with them a long list of industry contacts from their prior high-level job experiences. Then there are the countless associations cultivated since DJM’s founding.
“Over the past 15 years, we’ve developed a lot of relationships with a lot of landlords when we’ve worked through many difficult situations where everyone felt they were treated fairly,” says Graiser. “We do a really good job of making the landlord part of the solution. When we’re trying to find replacement tenants, we consider their mall, their strip center and the co-tenancy issues. We’ve garnered a lot of respect from the landlords in that regard and it’s really helped us get over a lot of hurdles.”
Team is the first thing Graiser mentions when asked what makes DJM so successful. He counts among his more than 20 colleagues a former president of Warner Bros. Studio Stores; a real estate capital expert specializing in out-of-court restructuring, bankruptcy and merger & acquisitions; a former executive of Balcor/American Express’ capital markets group; the former COO at Jeepers; and a former vice president of store development and real estate for The Discovery Channel.
“We have an incredible amount of depth to our organization,” says Graiser. “These guys have been on the other side of the closing table, so we bring a lot to the retail client. Knowing we can walk in their shoes, knowing what they’re going through, it makes a huge difference. This experience has enabled us to have a very broad, very in-depth knowledge of the real estate market before we get started on a project. We have a very strong database of information so we’re going to understand the retailer’s real estate as well as the landlord before we get into negotiations.”
Resources
The company knowledge and contacts are manifested in DJM’s extensive database, which includes a broker network numbering in the thousands, according to Graiser. Parent company Gordon Brothers Group provides DJM with high-level contacts at retail companies for targeted marketing efforts.
“When we think a retailer should be taking over a location and they’re not reacting the way they should, we’re not afraid to go to the CFO, the COO or the head of stores and talk to them about the opportunity,” says Graiser. “We’ll also understand who the likely replacements are through all those retail connections and contacts throughout the United States and internationally.”
Gordon Brothers’ capital has allowed DJM to get more creative and thus have more options when dealing with various retailers and their surplus real estate problems.
“Sometimes the best solution to get rid of a lease is buying a shopping center or sometimes buying the note,” says Graiser. “It doesn’t happen often. It’s unique to have the capital resources available to resolve difficult lease and real estate issues.”
Clientele
DJM Realty handles the disposition of surplus real estate for 44 different retailers, including Toys ‘R’ Us, Comp USA, Borders Books & Music, Dollar General, Big Lots and Pacific Sunwear demo stores. It took only a little more than a year for the company to dispose of 525 locations for Casual Corner. A couple of years ago, the company presided over the disposition of more than 120 locations for Kids ‘R’ Us.
“We conducted a bid process and in 4 months we disposed of probably 85 to 90 percent of that real estate from which there was a nice premium paid to the company,” says Graiser.
In November 2007, DJM Realty was selected by The Bombay Company, which specializes in home accessories, wall decor and furniture, to exclusively manage the national disposition of 335 of its retail store leases and five distribution center leases in the United States. Bombay stores are located in 41 states and are concentrated in the Southeast (98 locations), the Northeast (73), the Midwest (50) and California (53).
Growth
Due to the demands put on retailers, as well as lenders on Wall Street, DJM Realty has become much more aggressive in the last 2 years in becoming a real estate principal.
“With the change of the bankruptcy code — it’s changed so much — now we’ll come into a bankruptcy situation and guarantee the retailer a certain amount of proceeds or we’ll actually just buy the lease in Chapter 11,” says Graiser. “Then we’ll go to our existing clients or other retailers to make them part of our exit strategy where they take over the leases from us.”
“The biggest thing is our team and the ability to get creative with our own capital. We like the idea of putting our money where our mouth is. It’s one thing that most of our competitors won’t do. As much as we’re a service provider, we also do real estate acquisition.”
As for product type, DJM has expanded into the supermarket sector, working with Kroger, Farmer Jack, Winn Dixie and Food Lion. Another growth area for the company is restaurants where it has done disposition work for Burger King, Don Pablo’s, Krispy Kreme Doughnuts, Friendly’s and Yum Brands, among others.
©2008 France Publications, Inc. Duplication
or reproduction of this article not permitted without authorization
from France Publications, Inc. For information on reprints
of this article contact Barbara
Sherer at (630) 554-6054.
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