Ramco-Gershenson Properties Trust told investors last week that it expects $700,000 less income in 2011 compared with 2010 because of three leases being terminated by The Great Atlantic & Pacific Tea Co. in bankruptcy.
But it might not be the end of bankruptcy-related losses for the real estate investment trust. Farmington Hills-based Ramco owns retail buildings in Farmington Hills, Rochester Hills and Madison, Wis., that are leased to Ann Arbor-based Borders Group Inc.
The bookseller expects to file for bankruptcy as early as next week, according to a report Tuesday by Bloomberg, citing unidentified sources. The story said Borders is considering closing 150 of its nearly 650 stores.
In bankruptcy reorganization, a company can terminate any leases, causing financial losses to the landlords if the space cannot be re-leased.
Mike Sullivan, vice president of asset management for Ramco-Gershenson, said all three spaces are being marketed.
“We try to be as proactive as possible,” he said. “If they go into bankruptcy, we don’t know what leases they’ll accept and what they’ll reject. But it’s best to start marketing these spaces anyway.”
The Farmington Hills store, which closed last month, has a lease close to being signed, Sullivan said. He expects to fill the spaces in Rochester Hills and Madison quickly.
“We’re cautiously optimistic that we can get out of this with minimal impact,” Sullivan said.
Among the landlords expected to be hardest hit by a Borders bankruptcy is Farmington Hills-based Agree Realty Corp. The company has 14 leases with Borders, including the bookseller’s Ann Arbor headquarters building. Agree also owns the company’s flagship store on Liberty Street in downtown Ann Arbor.
The remainder of the Agree-owned properties are scattered around the country.
Agree has been working to diversify its roster of tenants and has reduced its exposure to Borders — from 29 percent of its rental income at the beginning of 2010 to 20 percent now. In Agree’s 2009 annual report, it said 29 percent of rental income represents $9.9 million.
President and COO Joey Agree declined to comment on Borders.
It remains unclear which stores in the area would be closed in a bankruptcy. There are 28 Borders locations in metro Detroit, including seven of the Borders Express stores, which are short-term leases. There are also four small stores in Detroit Metropolitan Airport and one Waldenbooks location.
Many Borders locations are owned by out-of-town investors.
The Oakland Mall location in Troy is owned by Chicago-based Urban Properties, according to data from the Washington-based CoStar Group. New York-based Related Property Corp. owns the Borders stores in Birmingham and Grosse Pointe, and Kinsan Management Corp. of Boca Raton, Fla., owns the Dearborn location. New York-based Kimco Realty Corp. owns the Novi location.
Chicago investor Stan Johnson Co. owns the Auburn Hills location, and General Growth Properties, also from Chicago, owns Southland Mall, which contains a Borders store, according to CoStar.
Other local investors include John Murphy, owner of the Brighton location, and Frederick Goldberg of Bloomfield Hills, who owns the Waters Place location in Ann Arbor.
Shares of Borders (NYSE:BGP) dropped sharply after publication of the Bloomberg story. As of 12:30 today, the stock was trading at 39 cents a share, nearly half the 75 cents it traded at Tuesday before the story appeared.
Mike Souers, an industry analyst covering Borders for S&P Equity Research, issued a note to clients early today and maintained his recommendation that investors hold the stock.
He mentioned that Borders is still working with GE Capital on a $500 million loan to keep the chain operating, but the conditions requiring suppliers and landlords to convert missed payments into interest-bearing debt stand in the way.
Souers wrote: “We think BGP continues to negotiate with vendors and landlords in order to meet the conditional requirements for its newly secured credit financing but that the terms pose a formidable challenge to meet.”
