Merry-Go-Round headquarters believed for sale Retailer needs cash as its troubles continue to fester

Millions from a building?

Observer sees a sign of an entity 'on the way out of business'

January 31, 1996|By Kevin L. McQuaid and Alec Matthew Klein | Kevin L. McQuaid and Alec Matthew Klein,SUN STAFF

In an attempt to generate much-needed cash, Merry-Go-Round Enterprises Inc. is putting its mammoth Joppa headquarters up for sale, sources said yesterday.

The decision to relinquish its $34 million headquarters and distribution center marks the latest cutback by the national retailer, which is struggling to survive the quagmire of free-falling sales and a 2-year-old bankruptcy reorganization.

Officials involved in the bankruptcy case told The Sun Monday that the fashion retailer is considering various options to raise capital and that a corporate liquidation of Merry-Go-Round is possible.

The urgency of the situation, retail analysts say, is only underscored by the proposed sale of the company's headquarters -- roughly equivalent in size to the 35-story USF&G building and the 28-story Legg Mason Tower/Gallery at Harborplace combined.

"It's far from encouraging, and it's either another dramatic move to reduce expenses or the first sign that the company's pieces will be sold off," said Alan G. Millstein, editor and publisher of the Fashion Network Report in New York. "If they get any smaller, they'll have to run the operation out of a closet."

Merry-Go-Round on Friday retained the Binswanger Co., a Philadelphia real estate firm, to market its 1 million-square-foot building for sale or lease.

Binswanger was hired at the suggestion of Fidelity Investments, the company's largest creditor, sources said.

Officials from Binswanger referred all inquiries to Merry-Go-Round, but company officials neither confirmed nor denied the possible sale.

"Obviously with a smaller company, we've been looking for alternatives for quite awhile," said company spokesman Michael W. Kempner. "That facility was designed for a much larger company, and, at a minimum, Merry-Go-Round is a much smaller company."

The retailer, which boasted more than 1,200 stores in late 1994, has eliminated nearly 60 percent of them since then, leaving it with 536 stores.

The value of the Joppa building may be axed as well.

A recent Merry-Go-Round appraisal of the building estimated its present value at $30 million, but local commercial real estate experts said its true value is much less because of the building's 190,000 square feet of office space -- situated in a market with few large office users.

"It's a unique property in that it's so large," said Andrew J. Georgelakos, a KLNB Inc. agent specializing in industrial properties. "It will generate a lot of interest. There aren't a lot of buildings that size being marketed, even nationally. But the value of the building is in the warehouse, and the price will probably be discounted because of the large office component."

Merry-Go-Round first studied the idea of putting the Joppa complex on the market more than a year ago, a plan under which the company would have sold the building, then leased it back from the buyer.

Last summer, the company also considered leasing to third parties -- including Saks Fifth Avenue -- a significant portion of the four-story warehouse, of which about two-thirds are empty.

State-of-the-art

When Merry-Go-Round relocated from Baltimore County to Harford in the late-1980s, its distribution center was considered state-of-the-art, replete with costly conveyor systems to move goods and trim the time needed to ship its then popular products to stores.

As of yesterday, some $20 million worth of the high-tech conveyor equipment -- some of it still wrapped in plastic -- sat idle, sources said.

"If you don't have a headquarters and you don't have a distribution center, it's almost like having soldiers in the field without a command post," said Kurt Barnard, president of Barnard's Retail Marketing Report, a forecasting firm based in New Jersey.

"It simply suggests to me that they're on the way out of business. They probably have no choice."

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