Some choice Orange County retail space is up for grabs as music chain Tower Records winds down its operations.
Tower Records has five OC stores, some of them in prime spots: Tustin’s The Market Place, downtown Brea, Costa Mesa along Newport Boulevard and at the Buena Park Downtown mall and the Laguna Hills Mall.
West Sacramento-based Tower Records filed for bankruptcy in August and said recently it plans to close its stores and call it quits, likely by December. Blame discount retailers Target and Wal-Mart and online sales of digital music.
For now, the chain’s OC landlords are in limbo.
Woodland Hills-based Great American Group, which specializes in liquidations, bought out Tower’s leases in a bankruptcy auction.
Great American and its partners, Boston-based Crystal Capital and New York’s Retail Consultants Inc., are looking for tenants to take on the leases.
“We paid for the right to try and market the leases,” said Scott Carpenter, executive vice president for Great American.
Great American expects to know the status of all the leases in about 30 days. The company also is handling the blowout of Tower’s CDs, DVDs, magazines and other merchandise through a series of discount sales. Selling off stuff is Great American’s forte. It typically closes the least profitable stores first and keeps selling the latest releases at the smallest discount at remaining stores.
“We get sales of every item, in every store, every day,” Carpenter said.
It could be easy to find tenants for Tower’s OC stores and others in the region. They’ve been among the most profitable.
“In general, all Southern California stores are doing well,” Carpenter said.
The challenge: the area’s high rents and the large size of some of the local stores.
In the meantime, Great American is on the hook for rents to landlords.
“The estate got the benefit of us taking the risk,” Carpenter said.
The aim is to sell the leases to someone else for more than what Great American paid for them.
“If we do the right things, we’ll make a little bit of money,” Carpenter said. “At the end of the day, if we paid too much, we’ll be sorry.”
Landlords, the largest group of creditors in Tower’s bankruptcy, can be the first to get shafted when businesses start to fail, Carpenter said.
Costa Mesa Store
Peter Dunkel, landlord of the Costa Mesa Tower, said the chain always paid its rent except for last month. The retailer paid about $30,000 a month for the store near Triangle Square. It’s been one of the most profitable in the chain, according to Dunkel.
He chalks up the store’s business to its location, which is just off the Costa Mesa (55) Freeway on the way to the beach.
“The people are being delivered by the freeway,” Dunkel said.
Dunkel bought the property earlier this year for $5.5 million. He estimates it’s now worth about $7.5 million. The store, which used to be a roller rink, has its own parking. In the past 15 years, rents there have doubled, he said.
“A surfboard shop could easily make ends meet there,” he said.
A flat-screen TV store also could be a good fit, Dunkel said.
Prior to Tower’s bankruptcy, Dunkel said he’d gotten about seven calls a month from people interested in leasing there. Now he’s getting calls daily, he said.
Dunkel said he’s not worried about getting a tenant. He speculated that the Tower in Brea, a big, custom-built store, could be one of the hardest to lease.
“It’s not a box,” Dunkel said.
CIM Group Inc. in Los Angeles owns the Brea building and couldn’t be reached for comment.
The landlords could end up getting their stores back to lease themselves.
Landlords could buy back the leases from Great American at a higher rate, or the bankruptcy court could give back the leases if no one buys them, Carpenter said.
Cyndi Taylor, general manager for Buena Park Downtown, where a Tower opened not too long ago, said she’d like to see a bookstore move in.
“It’s still too early to tell,” she said.
The Irvine Company, owner of the Tower in Tustin, and Simon Property Group Inc., which owns the one in the Laguna Hills Mall, said it’s too early to know what might take Tower’s place.
If Great American can’t find a tenant, “Simon Property Group wants to be in a position to move forward, without delay, in locating a replacement tenant(s),” Simon spokeswoman Billie Scott wrote in an e-mail.
Simon already is in talks with potential tenants, she said.
