Bankrupt and now selling off everything, the once prosperous Hechinger Co. home improvement chain today auctioned off its Tenleytown store, the jewel in its real estate portfolio, for $17.5 million.
The sale to the investment firm Capital Guidance Corp. won't be final until a bankruptcy judge approves. But the sprawling store at the top of Wisconsin Avenue in affluent Northwest Washington has already generated intense interest among retailers and residents alike. Located in an extremely tight real estate market, the store was one of the few remaining home improvement outlets in the city.
The new owner, based in the District, said it has no firm plans but recognizes the property's importance to local residents. In several urban markets in the Washington area, including the District, residents have complained that Hechinger's demise will leave them with no convenient alternatives.
"I expect that we'll be talking to them," said Richard Lake, a principal with Madison Retail Group, the Washington partner of Capital Guidance.
But several Washington area real estate officials warned residents not to expect do-it-yourself giants Home Depot Inc. and Lowe's Cos. to replace many of the 26 Hechinger stores in the Washington area. "You probably won't see that occur," said Grant Ehat, vice president of JBG Rosenfeld Retail Properties in Bethesda.
Ehat and others said many of the stores are too cramped for mammoth stores. And the new landholders or leaseholders may decide to create mixed-use properties that include offices and residences.
Home Depot has been sending out more feelers than Lowe's, according to real estate sources. Atlanta-based Home Depot has been rumored to be behind other purchases by real estate investment firms. The company added fuel to those rumors last month by snapping up a Bethesda Hechinger property for $15.6 million--a price that astounded some real estate observers.
"I would have loved to see those numbers--to see how they're making them work," Ehat said.
Hechinger announced in September that it would leave the Washington retail landscape after 88 years of building its business. Today, everything from hammers to store leases is now up for sale. The Largo-based chain gave up trying to compete with its more modern competitors in 1997 and was sold to Leonard Green & Partners L.P., a Los Angeles firm.
Leonard Green & Partners combined Hechinger with another ailing retail chain, Kmart Corp.'s Builders Square division. The marriage didn't work. Hechinger filed for Chapter 11 bankruptcy protection in June. But it's the stores themselves that have lured real estate brokers, retailers and investment firms across the nation. Hechinger has been selling off about 150 stores and store leases, including those in the Washington area.
Yesterday, approximately 150 interested parties gathered in an auditorium at the Equitable Center in New York for an all-day auction of about 40 of the Hechinger stores and store leases.
By late yesterday afternoon, it appeared that Hechinger Enterprises, a real estate investment firm controlled by the Hechinger and England families, had control of leases for stores in Rockville, Tysons Corner and Wheaton. The firm owns those three properties, along with Hechinger sites in Springfield, Alexandria and on Fort Benning Road in the District. The total price for the leases was unavailable late yesterday but was expected to exceed $2 million.
John W. Hechinger Jr. said it was too early to tell what might be done to the stores. "We don't exactly" know, he said.
Other winning bidders included the Schottenstein family, founders of Ohio-based Value City Department Stores Inc., which offered to buy the lease for the Hechinger store at Baileys Crossroads in Fairfax County for $2.4 million. Starwood Ceruzzi LLC, an investment firm based in Connecticut, beat out other bidders for properties in Annapolis, Laurel and Waldorf.
None of the sales are final. They must be approved by a bankruptcy judge later this month. In addition, Hechinger has the right to accept other bids.
About half of the 26 Hechinger properties in the Washington area were auctioned today. The remainder received few bids, no offers or are part of a package desired by Kimco Realty Corp.
New Hyde, N.Y.-based Kimco, which is one of the nation's largest retail real estate investment trusts, apparently has "cherry-picked" several stores in the Washington area.
Kimco Chairman Milton Cooper declined to discuss which sites his company wanted to add to its portfolio. But real estate sources said the company wants leases to several Washington area stores, including those in Alexandria on Duke Street, Reston and Annandale.