By Samantha Meglinger - Staff Writer
January 21, 2014 – Seventeen years after the City of Long Beach entered into a $750,000 loan agreement with the Marina Pacifica shopping center to help secure key tenant Loehmann’s, the department store is preparing to close for good.
The designer discount retail chain filed for bankruptcy in December and is in the process of selling its inventories before closing its 39 stores nationwide. It marked the third Chapter 11 bankruptcy filing for the company, with the previous one in 2011.
Deputy City Attorney Richard Anthony told the Business Journal that the full loan amount was paid up front when the loan was issued in 1997. When the agreement was renewed in January 2012, no additional money was involved. “The city has no continuing financial obligation,” Anthony stated.
Loehmann’s, a discount retail store at Marina Pacifica shopping center,
is going out of business following news that the company filed for bankruptcy
in December. Marina Pacifica must secure another retail tenant
for the property under an agreement with the City of Long Beach.
(Photograph by the Business Journal’s Thomas McConville)
According to city documents detailing the loan’s renewal, key tenant loans are meant to “promote additional retail opportunities and to generate additional tax revenue.” The agreement specified that “in lieu of making monthly principal and interest payments,” Marina Pacifica must retain the business for the term of the loan.
“I would imagine the idea is the key tenant will generate enough sales tax revenue over the life of the loan that the city will make much more money in sales tax than it will lose by forgiving the loan,” Anthony said.
Citing legal reasons, City Director of Financial Management John Gross said he was unable to tell the Business Journal how much sales tax revenue Loehmann’s has generated since 1997. “I can tell you that Marina Pacifica shopping center generates an average of between $300,000 and $325,000 a year since before 2000 through 2012,” he said. However, a Business Journal story in April 1997, citing the staff report, said “the annual gain in sales tax revenue from Marina Pacifica for the city’s General Fund would be $70,000.”
The agreement specifies that if Loehmann’s vacates the property, the borrower would have to pay back the loan to the city. “To my knowledge, the Loehmann’s bankruptcy is not a default under the key tenant loan agreement, but Marina Pacifica is obligated to use its best efforts to replace Loehmann’s with another retail sales tax generating tenant,” Anthony said. He said that there is no time limit attached to the requirement of finding a new tenant.
What defines a demonstration of “best efforts” to secure a new tenant is a bit foggy. “As a lawyer, I would rather that it had a time period. That makes things real simple – either they get another tenant in there within 120 days or not,” Anthony said. “But because it’s their ‘best efforts,’ that’s open to some interpretation. What constitutes best efforts?”
Still, Anthony seems confident that when Loehmann’s leaves, another retailer will eventually take its place. He commented, “Marina Pacifica is going to be incentivized to get a new tenant in there as soon as possible, because they are going to be losing money if someone is not paying them rent.”
The package the city put together to attract Loehmann’s totaled $2,875,000, that included the razing of the existing Buffums’ department store building and construction costs for a new building.
In the 1997 Business Journal stories (April and May of that year), the publication was critical of the city’s deal, providing documentation that the retailer was having financial problems and that its stock had dropped 70 percent (from $30 a share to $7.50) in four months prior to city council approval. Addtionally, three other cities (Seattle, Ft. Lauderdale and Tustin) with a Loehmann’s opening during the first quarter of 1997 told the Business Journal they did not provide an incentive package to attract the retailer.