Furniture mart boss hopeful

After a turbulent couple of years, leaders of the World Market Center see glimmers of stability.

Preregistrations for the winter market, to start Monday and run through Friday, are about even with a year ago, CEO Robert Maricich said. Although he does not disclose hard numbers, this would run lower than attendance in better times a few years ago, but mark an improvement from the approximately 5 percent decline at the August market.

He termed the anecdotal results from attendees signing up and hotel room bookings "encouraging," but added, "We still think there is a dynamic at work where stores are being represented by fewer buyers."

The three giant towers, which cover about 5 million square feet, house showrooms for furniture manufacturers and representatives that try to land orders from the retailers attending the market. Most of the showrooms are dark for all but two weeks a year.

The agent representing the lenders in reworking the $557.1 million in mortgages on Buildings A and B reported this month that it was "finalizing the terms of a loan modification and reinstatement." This marked progress from previous monthly reports, published by research firm Trepp LLC, that merely said negotiations were continuing.

World Market Center defaulted on the loans in April as companies that leased showrooms went out of business or moved out to save money, driving up vacancies and cutting rental income. Reports by the lenders' agent, known as a special servicer, said the occupancy in Building A had dropped from 99 percent when it opened to 85 percent in June 2009, the most recent date available. Building B occupancy had fallen 98 percent to 75 percent, with no numbers for Building C. Maricich declined to give any data but said the effective occupancy ran higher due to temporary leases instead of the five-year ones signed by permanent tenants.

When combined with some of those who stayed renewing leases on cheaper terms, the market could no longer cover the payments on the loans.

Even if the loan modification goes into effect, major question marks loom over the center's future. Maricich would not discuss the potential terms of a modified loan, but a number of real estate workouts have involved the transfer of partial or entire ownership to satisfy a default. Lewis and Roca bankruptcy attorney Rob Charles, however, said a complex matrix of factors can point the outcome in several different directions.

The fate of Building C, burdened by a $488 million construction loan that comes due in December, has not been resolved. The loan was made by Hypo Real Estate Holdings, an affiliate of a German bank that was taken over by the German government in 2009 after it buckled under the weight of bad real estate deals. Parts of the loan have been syndicated to other European Union lenders.

Meanwhile, World Market Center will accelerate its push into the gift and home decor sector. About three years ago, Maricich estimated that the soft goods and small items that fall under the category took up about 10 percent of the market, while traditional furniture took the rest. That gift and home decor share will now run about one-third and grow to possibly half in the next few years, he said.

"Hard furniture continues to be really challenged," he said.

Furniture Insight, a newsletter published by the High Point, N.C., accounting firm Smith Leonard, tracked a decline in orders in the fourth quarter. "The hope for 2011 is to see at least some modest growth starting at some time," firm managing partner Kenneth Smith said.

The gift industry, affected by discretionary spending, has also suffered.

"What has happened in the economy has happened in the gift and home industry as well," said Diana Carnavale Jones, executive director of the Gift and Home Trade Association in Grand Rapids, Mich.

Speaking relatively, Maricich said, gifts have fallen less and rebounded faster than regular furniture.

Brandwise, which makes sales-tracking systems for vendors, found that 307 out of its 433 clients at the Atlanta Gift Market reported lower revenues while 106 reported gains in 2009. The gap had tightened to 185 increases and 217 declines last year, as other variables such as the number of customers and average orders also climbed.

"This recession is the first time both furniture and gifts tanked at the same time," Brandwise President Todd Litzman said. "But it is now returning to the traditional pattern of gifts going up, because of the lower prices, as furniture declines."

By pushing into gifts, Maricich sees an opportunity to consolidate traffic now spread among several gift marts west of the Mississippi. But it won't be a slam dunk. Frank Schleidt, owner of the G. W. Schleidt gift distributor in Las Vegas, said he dropped the market after one showing because the traffic did not make it worth his while.

But Diana Aldrich, owner of Divas Limited, said she has been at World Market Center from the beginning on a show-to-show basis, never taking a permanent space.

"So far, it has worked for us," she said.

Divas serves as a manufacturers' representative for one-size-fits-all items of women's clothing. Because some furniture stores have started setting aside sections for women's items, she said she has begun to tap a new market beyond the hospital gift shop buyers that attend the Las Vegas market.

World Market Center's increased gift-market focus may set up a head-to-head rivalry with the gift market in Los Angeles, Litzman said.

"I think L.A. is going to have a tough time if the gift market takes hold in Vegas," he said. "But the question is whether people are ready to take the big risk with their money to try Vegas."

To lure more buyers, World Market Center has teamed with the Gift and Home Trade Association to offer incentives such as free memberships to the first 500 buyers.

Beyond possibly muscling aside the Los Angeles market, Litzman doubts that a broader consolidation will take place. Predictions have been made in the past that markets in places like Denver and Portland, Ore., would disappear, but have never come true, he said.

Contact reporter Tim O'Reiley at
toreiley@reviewjournal.com or 702-387-5290.