Alexander’s, Inc.

views updated

Alexander’s, Inc.

Park 80 West, Plaza II
Saddle Brook, New Jersey 07663
U.S.A.
Telephone: (201) 587-8541
Fax: (201) 587-0061

Public Company
Incorporated: 1955 as Farbro Corp.
Employees: 78
Sales: $63.97 million (2000)
Stock Exchanges: New York
Ticker Symbol: ALX
NAIC: 53112 Lessors of Nonresidential Buildings (Except Miniwarehouses)

Alexander’s, Inc. is a real estate investment trust (REIT) engaged in leasing, managing, developing, and redeveloping properties in the New York City metropolitan area. These properties were formerly units in a chain of Alexander’s department stores. Its undeveloped block on Manhattan’s East Side, formerly occupied by one of these stores, has been called the world’s most valuable hole in the ground. Alexander’s’ activities are conducted through its manager, Vornado Realty Trust, which owns one-third of its common stock and leases its properties.

Thriving Retail Chain: 1928-70

George Farkas began working in his father’s Brooklyn dress shop when he was eight. He opened his own store in New York’s borough of the Bronx in 1924 and founded a much larger store—which he named Alexander’s for his deceased father—in 1928, with an initial investment of $7,500. This store, located below the elevated tracks at 152nd Street and Third Avenue, was an immediate success, achieving sales of $500,000 in its first year. In the spring of 1929 the store was enlarged for the first of 30 times. Its founder later recalled to Leonard Sloane of the New York Times, “Fortunately, I had to sell all of my stock before the crash to pay for this expansion. We were also small enough and flexible enough to survive and grow during the Depression.” Another Alexander’s opened in 1933 at Fordham Road and Grand Concourse, also in the Bronx. This site became the company’s headquarters and eventually expanded to ten times its original size.

Positioned somewhere between a full-service department store and a discount store, Alexander’s specialized in low-priced clothing for its Depression-era customers who nevertheless had some pretensions to style. It kept its prices low by avoiding a downtown location, buying instead of renting its properties, investing heavily in labor-saving equipment, and not making alterations or deliveries or offering charge accounts or mail-order. Its buyers won a reputation for keen knowledge of the market and a nose for finding off-season bargain merchandise. Brand-name manufacturers selling to downtown stores did not want it known that Alexander’s was hawking the same wares uptown for less, so the company did not display such lines in its windows or its advertisements, and it took out the labels if the manufacturer insisted.

Wartime and post-World War II prosperity brought Alexander’s clients into the middle class but also dispersed them into the suburbs. Alexander’s was quick to take advantage of the trend, opening, in 1951, a store in White Plains, the seat of Westchester County—the county directly north of the Bronx. Complete with a six-level garage, the new store was the first in Westchester to remain open evenings and brought the chain’s annual sales in 1953—its 25th anniversary—to $47 million. By 1963 Alexander’s had added outlets in Rego Park, Queens; Milford, Connecticut; and Paramus, New Jersey. In a quest for fashion leadership in the low-margin field and at the urging of Farkas’s eldest son, it upgraded its merchandise by making exclusive arrangements with European manufacturers. (In 1965 Farkas admitted to Business Week, “We lost money on imports for years before we finally broke through.”) Hard goods such as radio and television sets, artwork, and luggage were added. The company also redesigned and redecorated its stores; the Paramus outlet, for example, featured on its facade what was called the world’s largest mural, a glass-and-steel abstract work that stretched the length of a city block. A subsidiary, Rent-A-Car Inc., became one of the largest rental car companies in the metropolitan area.

In 1963 Alexander’s announced that it had acquired a T-shaped plot in the Manhattan block between East 58th and 59th streets and Lexington and Third avenues, just south of Bloomingdale’s. Two additional purchases subsequently enlarged the property, and in 1965 Alexander’s opened a seven-level flagship store on this site—the first new midtown Manhattan store built from the ground up since 1947.

Alexander’s Department Stores, Inc. was a private corporation controlled, at this time, by Farbro Corp., a holding company owned by Farkas, his wife, and his four sons. In 1962 Louis Schwadron, a relative who had helped found Alexander’s and owned, with his family, a large block of its stock, sold his 38 percent interest to E.J. Korvette, Inc., the largest discount store chain in the United States. The Farkas family, however, refused to sell Korvette the slightly more than 50 percent of the stock that it held. In 1967 Spartan Industries, Inc.—which had purchased Korvette—agreed to sell the Farkas family half these shares of Alexander’s and to market the remainder in a public offering of stock. Alexander’s, Inc., a publicly owned company, was established in 1968, with George Farkas’s son Alexander as chief executive officer. An initial public offering of about 40 percent of the outstanding shares raised about $41 million.

Alexander’s sales volume increased from $199.84 million in fiscal 1966 (the year ended in late July 1966) to $272.77 million in fiscal 1970. Net earnings rose from $2.19 million to $6.84 million during this period. A leased store opened along Sunrise Highway in Valley Stream, Long Island, in 1967. Three years later the company jointly established itself with R.H. Macy & Co. at Kings Plaza Shopping Center in Brooklyn.

Decline and Bankruptcy: 1970-92

Alexander’s continued to add stores throughout the 1970s. It added an outlet at a shopping center in Garden City, Long Island, in 1971; two more at shopping centers in Edison and Eatontown, New Jersey, in 1972; a store in Flushing, Queens, in 1975; and stores in Yonkers and at Westchester Mall in Mohegan Lake, New York, in 1977. Another outlet opened in lower Manhattan’s World Trade Center in 1980. Most sales continued to be by cash or check, but the company accepted its first credit card in 1972, subsequently increasing the total to four. About 75 percent of sales was apparel and accessories in the 1970s. The chain was not selling major furniture or appliances. Sales grew to $505.09 million in fiscal 1980, but net earnings peaked at $7.06 million in fiscal 1970 and totaled only $1.05 million in 1980. A serious misstep was the acquisition, in 1978, of Margo’s La Mode, Inc., a women’s apparel chain with 70 stores in five states. Alexander’s shed this company in 1981 for about $7 million. That year Alexander’s lost $9.57 million, more than half of which was attributed to Margo’s losses and a write-off on its sale.

By this time Alexander’s was ripe for acquisition by Steven Roth, an entrepreneur who had closed the Two Guys discount chain owned by Vornado Inc. and converted its properties into suburban shopping centers. Roth’s Interstate Properties Inc. was Alexander’s largest individual stockholder in late 1980, with 23.4 percent of the outstanding shares. Allied with two of George Farkas’s sons, Interstate won five seats on the company board and effective control of the company. Robin Farkas, one of the insurgents, succeeded his brother as chief executive officer of Alexander’s in 1984.

In 1987 Donald Trump, also interested in Alexander’s real estate, purchased a big block of company stock. The following year both he and Roth purchased more stock, bringing their holdings to 27.2 percent each. The two agreed not to compete with each other for further control of the company. Alexander’s revenues continued to hover around $500 million a year through fiscal 1987, but net earnings diminished, and in fiscal 1988 the company lost money. The Eatontown store closed in 1983 and the Westchester Mall store closed in 1986. During 1988-89 the company also closed the stores in White Plains, Milford, and Edison. “The eventuality is that Alexander’s will disappear as a retailing chain,” an investment analyst told Amy Feldman of Crain’s New York Business in 1990.

In spite of these omens, Robin Farkas continued publicly to be upbeat about Alexander’s future as a retailer, envisioning the opening of a new store every year. A new Bronx store did make its debut in 1990 and included an auto accessories department bounded by luggage on one side and housewares on the other. But Alexander’s withdrew from an earlier foray into consumer electronics, because of its difficulty in competing with discounters, and it continued to concentrate on apparel.

The impasse between Roth and Trump ended in 1990, when Trump was forced to turn over his Alexander’s stock to Citicorp as forfeited collateral for a loan guarantee that he could not meet. The company lost money again in fiscal 1990, 1991, and 1992—about $40 million in the last two years, Robin Farkas said in May 1992, when all remaining Alexander’s stores closed. The company then filed for Chapter 11 bankruptcy protection. It sold its leases to the Valley Stream and Yonkers stores and the newest Bronx store to Caldor Corp., which also leased or subleased the Fordham Road and Flushing properties from Alexander’s, plus part of the Rego Park location. The total price tag was $117 million. Conway Stores, Inc. leased the Bronx Third Avenue store.

Key Dates:

1928:: The first Alexander’s opens as a store in New York City’s borough of the Bronx.
1965:: Now an areawide chain, Alexander’s opens its flagship on Manhattan’s East Side.
1980:: With 16 stores in the metropolitan area, Alexander’s reaches its maximum extent.
1992:: Now considerably shrunken in size, Alexander’s closes its remaining stores.
1995:: The company reemerges from bankruptcy as a real estate investment trust.

Real Estate Investment Trust: 1995-2001

Alexander’s emerged from bankruptcy in 1993. Vornado, now a REIT, purchased Citicorp’s holdings in the company for $54.8 million in 1995 and agreed to provide it with up to $75 million of secured financing for a three-year term. The infusion of cash enabled Alexander’s to meet a $28 million loan payment and avoid the alternative of having property auctioned. In return, Alexander’s converted to a REIT, and Roth became its chief executive officer.

Alexander’s, in 1998, purchased the half-share of Kings Plaza Regional Shopping Center occupied by R.H. Macy & Co. from Federated Department Stores, Inc. A $48 million renovation of the 1.1 million-square-foot property was scheduled for completion in 2001. The 303,000-square-foot Fordham Road location, vacated by Caldor’s bankruptcy in 1995, was sold in early 2001 for $25.5 million. The Flushing property, including a 177,000-square-foot building, remained vacant. A 351,000-square-foot building on the Rego Park property was fully leased to retailers in 2000. Alexander’s said in October 2001 that it had leased its choice Paramus property, located on 30 acres at the intersection of Routes 4 and 17, to a major retailer for $75 million in a 40-year deal, with an option to buy after 20 years. IKEA was reported to be the lessee.

The jewel in Alexander’s crown was the two-acre East Side property, a city block now fully owned by the company. The empty six-story building on the site was razed in 1999, when New York City announced plans to overhaul its zoning code and limit new buildings to 495 feet in height. The site was excavated and a foundation for an 800-foot tower built before the site would be subject to the new code. Roth envisioned a 1.2 million-square-foot mixed-use project, including office and retail space, a hotel, and luxury condominiums. Prospective tenants, however, considered his demands out of line, and in 2001 the site was still vacant and its future unknown. Alexander’s considered the capital required for the proposed building to be in excess of $650 million.

Alexander’s revenues increased from $21.83 million in 1997 to $64.39 million in 1999 but declined slightly to $63.97 million in 2000. Its net income was $5.2 million in 2000. Total assets at the end of the year came to $403.31 million, and the debt was $367.79 million, of which the debt to Vornado Realty Trust was $115 million. Vornado owned 33 percent of Alexander’s common stock. Roth was also chief executive of Vornado and managing general partner of Interstate Properties. Roth, Interstate, and the other two general partners of Interstate—David Mandelbaum and Russell B. Wight, Jr.—together owned 27.5 percent of Alexander’s.

Principal Subsidiaries

ADMO Realty Corp.; Alexander’s Department Stores of Brooklyn; Alexander’s Department Stores of Lexington; Alexander’s Department Stores of New Jersey; Alexander’s Kings Plaza Center, Inc.; Alexander’s of Brooklyn, Inc.; Alexander’s of Flushing, Inc.; Alexander’s of Rego Park, Inc.; Alexander’s of Rego Park II, Inc.; Alexander’s of Rego Park III, Inc.; Alexander’s of Third Avenue, Inc.; Alexander’s 175 Lexington Inc.; Alexander’s Personnel Providers, Inc.; Alexander’s Rego Shopping Center Inc.; Alexander’s Tower LLC; Alexander’s Tower Operating LLC; 59th Street Corporation; 59th Street LLC; 59th Street Operating LLC; Kings Plaza Corp. N.Y.; 175 Lexington LLC; Ownreal Inc.; Sakraf Wine & Liquor Store, Inc.; Seven Thirty One Limited Partnership; U & F Realty Corp.