AFC secures Yonkers deal

Real Estate Weekly, Dec 25, 2002

The 200,000-SF "big box" on Central Avenue in the city of Yonkers is located in a prime retail corridor serving southern Westchester County, N.Y. That, plus some fancy financing footwork by Manhattan-based investment banker AFC Realty Capital, enabled the building to continue to provide an uninterrupted rental flow through bankruptcy, liquidation and a change of ownership.

The facility served as the flagship store for Bradlees, an ailing retailer that had recently filed for bankruptcy. Forced by the court to reorganize and emerge from debt, the retailer needed $18 million to finance the reorganization plan and approached AFC to arrange a loan that would be secured by a leasehold mortgage on the Yonkers store.

"Conventional institutional financing was obviously not an option here," recalls AFC president Arthur Fefferman. "What's more, the court mandated that Bradlees secure a non-contingents commitment within ten days and close within two months-conditions almost impossible to achieve, given Bradlees' dire financial position. If we were going to pull this off, we needed some imaginative thinking and a novel creative approach."

The answer was found in an unconventional sale lease-back arrangement. Bradlees did not own the store, but rather had engineered a long-term, 33-year lease at an annual rent of $3 a SF -- a rate much lower than the area's average, which ranged around $20 a SF, Fefferman points out. Thus, the retailer had substantial equity value in the lease, justifying the capital it was seeking.

AFC decided to bring its own equity capital and its impressive reputation in the industry to the table.

"We arranged for an investment entity sponsored by AFC to purchase the property and lease the store back to Bradlees with a 30-year, $17.5 million triple-net instrument," Fefferman explains. "We provided $3.5 million of our own equity and successfully secured a $15 million mortgage-in effect, guaranteeing the financing by our own participation in the venture.

"This turned the trick. The commitment was secured within a week and closed within 60 days- meeting the courts very stringent requirements."

AFC reasoned that since the market value of the Yonkers store was in excess of $24 million, the mortgage would be secure even if Bradlees did not survive. Unfortunately for the retailer, that proved to be the case as continuing financial woes forced Bradlees to liquidate and go out of business 18 months after the sale leaseback was arranged.

"During that interim, we were approached by Burlington Coat Factory, the world's largest retailer of coats, which was operating out of a much smaller facility located nearby and needed larger quarters," Fefferman notes.