The bankruptcy of Garfinckel's Inc., the venerable local retailer, has dealt another setback to the D.C. government's long-running campaign to transform the heart of downtown Washington into a bustling urban mall.
When the liquidation sale ends at Garfinckel's flagship store -- a nine-story landmark built during the Depression at the corner of 14th and F streets NW -- and the last shoppers tote away their bundles of bargains, they will leave behind a vacant symbol of the obstacles developers and D.C. officials face.
"That creates a huge black hole," said Patricia McGrath, a real estate consultant.
Garfinckel's succumbed last week to heightened competition and the weight of its own buyout debt by seeking protection from creditors under federal bankruptcy law and announcing plans to close at least seven of its nine stores.
The drastic move by the 85-year-old retailer touched off an intriguing and highly visible real estate derby, in which new tenants will be sought for at least seven Garfinckel's locations, including the mammoth downtown store.
Though it holds leases, Garfinckel's does not own real estate. The downtown store was sold for $46 million in 1988 to unidentified foreign investors. A spokesman said the transaction was arranged by Wafic Said, the Middle Eastern investor who heads the group that bought Garfinckel's in 1987.
As part of the bankruptcy process, Garfinckel's intends to sell its leases to the highest bidders -- most likely its landlords or other retailers interested in occupying the space. Real estate executives said disputes could arise as to who controls some of Garfinckel's leases -- the bankrupt retailer or its various landlords. The D.C. bankruptcy court will have the final say.
Retail and real estate executives said it may be difficult to find a major department store to move into the downtown location. But the suburban shopping centers in Virginia and Maryland that house most of the other stores could end up stronger, they said, as retailers with greater drawing power are likely to replace Garfinckel's. Some of the leases may be divided among smaller tenants, brokers said.
Though some analysts believe it unlikely, Garfinckel's officials have indicated they would like to keep two stores open, probably in the Georgetown Park mall and on Connecticut Avenue NW. In addition to the spacious headquarters store with its blend of art deco and classic designs, the leases up for grabs include those at Spring Valley, Seven Corners, Montgomery Mall, Landover Mall, Springfield Mall and Annapolis Mall.
District planners and economic development officials had considered Garfinckel's an anchor for the downtown shopping district, along with Hecht's and Woodward & Lothrop. They have been trying for years to attract a fourth department store to the area, and to improve the odds, they changed the zoning in an 18-block area to require that developers devote about 20 percent of th1696625520projects to retail.
Developers, who stand to make more money from office space, opposed the rezoning. They said it called for more retail space than market demand warranted and predicted that it would produce blocks and blocks of vacant storefronts, deadening the downtown streetscape.
Raymond Skinner, executive director of the D.C. Office of Business and Economic Development (OBED), said Friday that the District wants to maintain a department store at the F Street location.
"If Garfinckel's restructuring ultimately results in the closing of that location, the District and OBED would want to work aggressively with the store and building owners to secure a replacement retail operator as soon as possible," Skinner said.
Developer Nathan Landow, whose negotiations with the city and other developers to attract another department store to the downtown area ended unsuccessfully in 1988, said the Garfinckel's closing poses a test of the District's resolve. It could take public subsidies to put another large retailer in place, he said.
"It gives the District a perfect opportunity to prove its commitment to attracting major retailers to downtown Washington," Landow said.
Earlier this year, the D.C. Board of Zoning Adjustment granted Garfinckel's permission to convert three of seven selling floors on F Street to office use. Garfinckel's said it needed the rental income from the office space to keep its operation afloat. Since it won the approval, the company has been looking for office tenants.
Though the downtown property might be most valuable if it were converted completely to office space, that would require approval from various government authorities. The building was declared a historic landmark in 1988, so any effort to alter its facade would require approval from the D.C. Historic Preservation Review Board.
Under the revised zoning regulations, written to keep downtown retail space intact, Garfinckel's also would need the zoning board's approval to convert more of the building into offices.
If Garfinckel's downtown store is offered to other department stores, it may face stiff competition.
Manufacturers Real Estate, the development arm of Toronto-based Manufacturers Life Insurance Co., is setting aside space for a small department store in a downtown office project it plans to build at 555 12th St. NW. The project is expected to be completed in three years.
The new zoning requirements forced Manulife to provide the retail space. The District compensated the developer with the right to build additional office space on the site, "which enables us to give a very, very attractive rent" to a retailer, said Sidney F. Dakin, head of Manufacturers Real Estate. Lord & Taylor has been talking to Manulife about the possibility of moving into its project, real estate executives said.
Dakin does not share some D.C. officials' vision of a downtown shopping district that competes directly with suburban malls.
"I don't think people area going to come in from the suburbs and drive into Washington, D.C., to shop on a Saturday afternoon," Dakin said. "They're going to shop in the suburban malls."
One of the District's main arguments for a fourth department store and an expanded base of downtown retail has been that a larger mass of stores generates more consumer traffic. Some observ17019993921685659752 Skinner, the economic development official, said Garfinckel's problems "are in no way an indication of a decline in the retail industry in the downtown area," but other people challenged that assertion. And downtown Washington is certainly not unique in struggling to maintain its department stores; for decades across the country, shoppers have abandoned large downtown stores in favor of suburban malls.
Robert Gladstone, president of Quadrangle Development Corp. and co-chairman of the D.C. Downtown Partnership, an alliance of businesses, community groups and the D.C. government, predicted new office construction and the accompanying growth in the number of office workers will create an increased demand for downtown retail.
"I'm not convinced in my own mind that another department store is essential for downtown," Gladstone said, adding that "a collection of specialty shops which in aggregate carry the same merchandise" could serve the same purpose.
Downtown Washington has recently had some trouble with specialty shops, though. Arthur A. Adler, the expensive men's clothier that has been a local fixture for 48 years, announced two weeks ago that it was going out of business. Several luxury retailers that studied downtown Washin1735683950 "We've offered basically rent-free space, and we can't attract a particular retailer," said developer John Akridge, who has leased less than a third of the 100,000 square feet of retail space in the Homer Building at 601 13th St. NW.
Several retailers have expressed an interest in downtown Washington during recent months, including Lord & Taylor, Raleigh's, the Gap, the Limited and Annie Sez, real estate executives said. Many more are likely to be interested in the space Garfinckel's is vacating at other locations, brokers said.
Kenneth Goldberg, a broker with Carey Winston Co., said Garfinckel's departure could create some short-term pain but more long-term gain for the owners of the malls and the other stores in the malls.
"Garfinckel's had not been a draw of any magnitude for the past several years," Goldberg said. "Any retailer with any brains knew that they were gone, that it was just a matter of time. I would be surprised if each mall had not already made contingency plans."
Robert Lerner, a real estate broker with Smithy Braedon Co., said Montgomery Mall should have a particularly easy time replacing Garfinckel's. "There'll be tremendous demand for that space," he said.
The malls that could be hurt most by Garfinckel's departure are Seven Corners Shopping Center and the Landover Mall, brokers said. Garfinckel's is one of only two anchor stores at Seven Corners. The Landover Mall is scheduled to undergo major renovations.
The Garfinckel's bankruptcy also creates uncertainty for Old Town Alexandria, where developer Michael Rolband had been negotiating a lease with the company. Garfinckel's had appeared close to an agreement to open a store in space vacated by J.C. Penney.
As of two weeks ago, Garfinckel's lawyers and a vice president had approved the lease, and it was awaiting review by the board of directors, a source said.
Now Rolband and his brokers are looking for another tenant.