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Borders to sell itself to private investment firm for $215 million

BY Katherine Boccaccio

Ann Arbor, Mich. — Borders Group announced Thursday that it has agreed to sell itself to Najafi Cos. for $215 million. The deal is subject to court approval.

Najafi Cos. is a Phoenix-based private investment company, which owns the Book-of-the-Month Club.

The "stalking horse" bid will open an auction for the company and its assets, so a higher bid is possible, according to reports.

A bankruptcy court hearing on the deal is slated to be held on July 21. Borders has filed a separate motion to liquidate should the court not approve an auction. Its assets would be sold by a joint venture led by liquidation firms Hilco and Gordon Brothers.

Borders said in a statement that a sale provides the "best path forward to reposition the business for a successful future and to maximize value for the company’s stakeholders."

Under terms of the deal, in which Najafi Cos. will also assume $220 million in debt, Borders will become part of the same business unit that owns, beside the Book-of-the-Month Club, Doubleday Book Clubs and Columbia House.

Najafi Cos. currently has investments in restaurant chain Pasta Pomodoro as well as the NBA’s Phoenix Suns basketball team, for which CEO Jahm Najafi serves as vice chairman.

Borders said it expects the sale process will be complete by late July.

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Rx for Ailing Retail?

BY Jeff Green

Back in late 2009-early 2010, I started seeing an uptick in medical users setting up shop in retail centers. I thought, “This is going to be a trend!” I was convinced we’d be seeing more and more outpatient and urgent care facilities moving in next to the Rite Aids and Ann Taylor Lofts of the world. For some reason, though, this “trend” is not evolving. And, to be honest, that’s a little more than surprising to me; it’s puzzling!

Why hasn’t medical-retail taken off like we thought it would? Why is it that — at a time when there are more and better sites than ever before and plenty of reasons to unite — the medical and retail communities haven’t taken advantage of the obvious synergies?

It seems like the medical community is taking a step back, which I think is a shame, because the retail development community is more interested than ever in having them as tenants. Healthcare seems like a great fit for all the vacancies out there, particularly the newly empty Blockbuster and Hollywood Video locations. Let’s think about it: Most retail locations provide added convenience, accessibility and ample parking for medical patients, and great visibility and branding power for the medical use.

I realize there are plenty of challenges to account for when trying something new, and we all know nothing is ever easy the first time around. There can be issues with zoning and co-tenancy, and when it comes to dealing with a non-retail use, retail landlords and real estate professionals don’t always understand how to structure the build-out so that it’s a win-win for everyone. Also, I know medical spaces require more complex build-outs because of their utilities and mechanical system needs. The single HVAC systems that exist in most retail spaces can be limiting to the medical tenant’s ability to be flexible.

I wonder though, if the true obstacles might be less logistical and more “cultural.” Medical real estate and retail real estate tend to speak different languages. And, medical professionals are used to being near other medical facilities. There is a comfort level with staying true to a formula; a sense of “safety in numbers.” If that’s the case, we aren’t likely to see much movement on this in the near future, especially if we continue to see retailers recovering and backfilling available space.

I think that if this trend is going to gain any momentum, retail landlords will need to meet with the heads of facilities for medical systems and be more proactive in their pursuit. Also, I think retail real estate professionals will need to work on having a better understanding of the needs of medical users in order to improve communication across the board.

What do you think? Were we too quick to think “medical retail” was going to be the next biggest trend? And, if this truly doesn’t pan out, what does that mean for vacant real estate space in the long term?

What do you think? Email me at [email protected].

Jeff Green is president and CEO of Phoenix-based Jeff Green Partners (jeffgreenpartners.com), a leading consulting firm specializing in retail real estate feasibility, retail expansion planning, medical retail planning, location analysis and commercial land use.

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Study: Retailers Eye Consumer Behavior as Economy Evolves

BY Katherine Boccaccio

With sales experiencing the peaks and valleys of a slowly recovering economy, retailers are watching their customers even closer than ever.

According to a study by accounting and consulting firm BDO USO, LLP, New York City, retailers have been less concerned in 2011 about consumer confidence and spending and, instead, are more watchful of consumer demand and interest.

BDO’s RiskFactor Report for Retail Businesses, which examines the risk factors listed in the most recent SEC 10-K filings of the largest 100 public U.S. retailers, found that consumer confidence and spending dropped from the fifth most cited risk factor in 2010 to the eleventh so far in 2011. Conversely, 87% of retailers are concerned with consumer demand and interest, up from 63% in 2010.

Almost all retailers — 97% — said general economic conditions remain their top risk. However, because of the decline in risks associated with consumer spending, BDO says it’s clear that retailer confidence in the recovery is increasing.

“Retailers are shifting away from the defensive recessionary mode. They are paying more attention to controllable risks, as opposed to external factors like economic conditions,” said Doug Hart, partner in the Retail and Consumer Product Practice. “Consumer balance sheets are stronger, and retailers see a critical opportunity to sharpen inventory and offer a breadth of merchandise.”

Among other report findings, top retailers have reason to be concerned about personnel risks. Amid several executive leadership changes, risks associated with the loss of key personnel saw a notable 49% increase this year. Seventy-three percent of retailers cited it as a concern.

This year has seen a return of mergers, acquisitions and growth plans. The recovery of both consumer spending and corporate bond markets has contributed to a recent spate of retail acquisitions by private equity firms. As a result, risks associated with mergers and acquisitions and joint ventures are back on the rise (62%), up from 47% in 2010. Retailers are also returning to expansion plans with an eye towards updated store formats and concepts. With the renewed focus on expansion, 67% of companies cite risks associated with U.S. growth plans, an 18% increase over 2010.

“While retailers are highly concerned with pricing pressures, they are also looking to expand,” said Hart. “Gradual increases in consumer spending, favorable rents and stronger balance sheets have retailers looking for growth opportunities.”

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