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(Crain’s) — German fashion house Escada A.G., known for its pricey evening gowns, may shut down its Michigan Avenue store in the wake of the company’s recent bankruptcy protection filing.
Escada’s U.S. subsidiary, Escada USA Inc., filed a motion this month in Bankruptcy Court seeking to reject its lease at 840 N. Michigan Ave., saying the company doesn’t use all the space and that current market conditions suggest there’s no value in trying to sublease the retailer’s four-level store.
But the owners of 840 N. Michigan Ave., a group led by executives at U.S. Equities Realty LLC, are negotiating new, more tenant-friendly terms with Escada in hopes of keeping the store open.
“We are in discussions,” says Camille Julmy, a co-owner of the building and vice-chairman of Chicago-based U.S. Equities. He wouldn’t provide details. “They will probably not close. We expect to reach some agreement.”
The Bankruptcy Court agreed to give Mr. Julmy and his partners more time to negotiate with Escada, says Gerald Bender, a New York attorney with O’Melveny & Myers LLP who is representing Escada USA Inc. in the Chapter 11 case, filed Aug. 14 in the U.S. Bankruptcy Court in the Southern District of New York.
The German parent filed for protection from creditors in Germany on Aug. 13, citing weak sales and failed attempts to restructure its debt.
Mr. Bender says objections to the lease rejection motion, which was filed Oct. 16, are now due Monday and that a hearing on the matter was pushed back a week to Nov. 5.
According to Escada’s court filings, the retailer’s annual rent of $2.75 million consists of $1.65 million in base rent plus an additional amount based on the consumer price index.
The annual base rent is already scheduled to be decreased to $1.45 million this month, according to a lease amendment signed in 2002. The lease expires Jan. 31, 2013.
The court filing also says Escada pays $705,443 a month for its share of operating expenses and taxes at 840 N. Michigan.
It’s unclear how much space the retailer leases, though sources say Escada currently occupies about 20,000 square feet, with the biggest portion — about 14,000 square feet — on the third and fourth levels.
A spokeswoman for Escada declines to comment.
When the property, known as Escada Plaza, first opened in 1991, the retailer leased a bigger space with ambitions of launching new product lines that never materialized. Ultimately, space was subleased back to the landlord and to other tenants, according to the court filing.
Toy retailer FAO Schwarz used to occupy the southern half of the 87,136-square-foot Plaza Escada building. Swedish off-price fashion giant Hennes & Mauritz A.B. (H&M) now leases that space, with about 46,000 square feet.
In its Oct. 16 court filing, Escada said it planned to shut down the Michigan Avenue store by Nov. 6. The retailer also filed to reject its lease for a planned store still under construction in New York’s SoHo neighborhood.
“After considering the locations of the Chicago store and the SoHo store and reviewing the terms of the leases, (Escada USA) has determined that the leases have little or no value and are a burden to the debtors’ estate,” the Oct. 16 filing says.
Should the space ultimately go dark, it would boost the already rising vacancy rate on Chicago’s Magnificent Mile.
Several other big spaces are currently available, including the former CompUSA and American Girl stores. Borders Group Inc. recently pushed back its planned closing a year to early 2011, after reaching a short-term lease extension with its landlord at 830 N. Michigan, where the bookseller leases 49,881 square feet.
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