Woolworth rethinks real estate holdings.

With the Woolworth Corporation's announcement that it intends to close all its 400 stores, about a quarter of which are in this area, real estate executives have begun salivating at the opportunities. There are 61 stores in the five boroughs, with 21 in Manhattan and many more in the tri-state area.

A spokesperson for the company said that while they continue to occupy their 54-story Downtown landmarked headquarters overlooking City Hall on Broadway, they will consider viable offers.

That was what a different spokesperson confirmed to REW in October of 1995, when rumors first circulated the company was taking another look at its real estate options. At that time, they were seeking to dispose of warehouse and industrial space. NOW, the division's valuable leases are also in play, and the opportunities are endless.

Woolworth is known in the industry for its very long leases with extensive options typically going on for 40 to 60 years at very low rents - that were negotiated in some cases 20 to 30 years ago.

"The leases that they have created a contractual obsolescence," said retail consultant Albert Bialek, using the appraiser's term. "The value of the building is being held down by these very long leases that go on and on and on."

Bialek, the principal of Albert Bialek Associates, developed the Colorado apartment house at the comer of 86th Street and Third Avenue a number of years ago. There was a Woolworth's in the way with a 60-year lease, so to make the deal, they had to agree to rebuild a brand new three-level store into the building "with another 60-year lease."

"Since we were building it, it was built deluxe," said Bialek who expects the lease to fetch $9 million to $10 million should Woolworth decide to sell out.

But many of the stores like that can be converted either into mini-department stores - as Woolworth was experimenting with six months ago - or partly into Footlockers, Kinney Shores or other Woolworth-developed brands such as Northern Reflections, After Thoughts and Best of Time. They can also be subdivided and re-leased. About 100 of the stores are expected to be re-merchandised in those ways.

The company has been seeking solutions for the division since it lost $500 million in 1993 and hired Roger N. Farah as chairman the following year. The Woolworth stores account for $1 billion of the $8 billion company.

The most natural bidder in a lot of instances is the owner of the center or building, says Ronald B. Bruder, president Brookhill Group Inc., because they have the ability to change the space and accommodate new tenants.

It also gives the owner the ability to get out from a long-term, low-rent lease.

"They typically have 40-year options, divided into eight, five-year options," added Bruder, who said his company has negotiated with Woolworth on other buy-outs and would be interested in many of the holdings around the country.

Faith Hope Consolo, a retail broker with Garrick-Aug Store Leasing, says the availability of the Woolworth locations is "the best news" the retail brokers have had all year.

"It gives us the type of space with key locations on corners in the best markets in the city," she said. "If Woolworth falls out of 300 stores, I've got 300 national retailers ready to fall in." They will be fine, she said, even in the urban areas.

Retail consultant Victor Menkin says Woolworth has some "amazing" holdings in the New York area alone.

"What you will see now are a disposition of underperforming units," he predicted. "The ones that are performing they will continue to operate, but you will see Woolworth capitalize on the locations with different uses."

Sources report they are about to sign a lease for a multi-floor location on Broadway in Soho that will showcase "a new specialty concept."

"What they will try to do is to bring in different merchandise," said the source. "It won't be a radical shift in the products, but will still deal to the same customer and give a different punch to the merchandise."

Bialek says the store closings will be felt more in the outer boroughs and in central urban areas such as on Main Street in New Rochelle, NY, where they are the only big national chain and are a community amenity.

"They are closer to their customer and you get the same customer back and back and back," he said.

The most typical stores have 10,000 square feet, with a selling basement of another 10,000 square feet, says Bialek.

Many of the stores can be divided up into several storefronts, as Bruder did in Huntsville, Alabama. There he took a 103,000 square-foot Woolco that had been sublet to Hills, where they were paying about $2.87 a foot gross.

"I chopped the box and pretty much doubled that and got between $5.50 and $8.50 a foot, triple net," Bruder recalled. "That center is one of our best turnarounds."

Bruder in also upbeat on a price should Woolworth decide to sell its 954,495 square-foot landmarked tower, designed by Cass Gilbert. The building at 233 Broadway was completed in 1913 and at 725 feet, was for many years the tallest building in the world. It was commissioned by F.W. Woolworth and one of its interior murals depicts him counting his nickels and dimes while Gilbert cradles a model of the neo-Gothic structure.

"It's a huge building and is a beautiful building," Bruder said. "It's got to be worth $400 a foot. These are phenomenal times." Other industry sources pegged the potential sale price of the building at $100 million.