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Aurora moves to capitalize on Daffy’s stores

9:00 am, August 1, 2012

By Sarah Trefethen

Deep-pocketed real estate investors Aurora Capital Associates have purchased the clothing retailer Daffy’s, according to sources familiar with the situation.

Daffy's pizza ad

Daffy's advertising emphasizes deep discounts on designer brands.

Daffy’s executives recently announced plans to liquidate their 19-store chain, and Aurora is said to be seeking subtenants for locations throughout the New York City metropolitan area. Jared Epstein, vice president at Aurora Capital Associates, declined to comment on the reports.

This would not be the first time a foundering retailer landed in the hands of a new owner drawn to its strong real estate portfolio.

“Vornado did it years ago with Alexander’s Department Stores,” said Jeffrey Roseman, executive vice president and principal at Newmark Grubb Knight Frank, noting that that purchase paved the way for the Bloomberg Tower. “I still think that was probably one of the greatest real estate transactions of my time.”

None of the people interviewed for this story claimed any knowledge of the Daffy’s deal. But they all know that Daffy’s holds leases in some of Manhattan’s prime shopping areas.

The retailer’s locations include 28,000 s/f on 44th Street off of Times Square, 54,000 s/f on East 57th Street, 30,000 s/f on Broadway in SoHo and 18,000 s/f in Atlantic Terminal in Brooklyn. The company also owns 220,000 s/f on Daffy’s Way in Secaucus, NJ.

“I think it was a very savvy move, if that’s what they did,” said Joanne Podell, executive director of retail services at Cushman and Wakefield, referring to Aurora’s reported purchase of the chain.

How smart it is to purchase a company in order to sublet its leased space depends on the terms of the original leases.

“If I were the landlord, I would look to my leases to see if they can be sublet without my permission,” Deborah Jackson, executive managing director of Weiser Realty Advisors, wrote in an email.

But if the lease terms allow it, the move presents two sources of value, according to Steve Rappaport, senior managing director at Sinvin Real Estate.

“There’s inherent value in the current leases. They’re purchasing that value,” he said. And “if there’s a large disparity between what they’re paying in the current leases and the going rate, then there’s value in that, given the strong location of Daffy’s stores.” Aurora — a company led by Bobby Cayre — has been bulking up its retail recently, buying several Soho properties along the hot Broadway corridor and working out deals with the likes of shoe emporium DSW for a flagship at the corner of 125th Street & Frederick Douglas Blvd.

It has also leased space to Italian shoe designer Carlo Pazolini, jean giant Levi and boutiques for Express and Lacoste.

Daffy’s, a privately-held company based in Secaucus, was founded in 1961 by Irving Shulman. Shulman died last year at the age of 96.

Real estate portfolios are often a retailer’s biggest asset, Roseman said.

“If you look at McDonald’s, if they never sold another hamburger the company would probably be worth double what it is today,” he said.

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