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TROY, MI-Now that Frank’s Nursery & Crafts has filed for Chapter 11 bankruptcy protection and announced its intention to liquidate, what will become of the chain’s 169 stores? Other retailers looking to expand could take on the former Franks stores, or the gardening retailer could reject the leases, leaving them to shopping-center owners, industry observers say.

The filing was Franks’ second in the last few years; the company previously reorganized in May 2002. Its latest was early last month, when the company said, “due to a general weakness in economic conditions, a steady decline in customer traffic and unfavorable weather patters causing a decline in all markets, the company has sustained significant losses from operations.”

The locally-based company faced competition from home improvement chains such as The Home Depot and Lowe’s, but at the same time, the stores, in 14 Midwest and East Coast states, had trouble competing with local upscale nurseries, said Gary Ruffing, a retail analyst at BBK Ltd.

“If you’re a middle-of-the-road player and you can’t define a niche, you’re in trouble,” he says. “And that’s where they ended up.”

Ruffing does not expect former Frank’s spaces, between 25,000 sf and 40,000 sf, to stay empty long. Most of them are in good locations, he says. “Nobody’s building any more,” he says. “They would be good for just about anybody.” Namely, he says, the larger apparel retailers and office-supplies big-box chains will be interested.

The chain will likely be sold off in pieces, similar to how Kmart has divested stores after its 2002 Chapter 11 filing, because that strategy makes more money than selling the units in a large block, Ruffing said. “Some of them could go very quickly, based on the time of year it is,” he said. “With a little bit of work, you could be open for Christmas.”

Of the retail REITs in Morgan Stanley’s coverage area, Kimco Realty Corp. has the most Frank’s with eight in their portfolio of just over 700 shopping centers. Kimco has another stake in Frank’s the REIT owns 75% of the retailers $27.6 million debtor-in-possession financing facility, and the same share of its secured line of credit, with $62 million outstanding.

Matthew Ostrower, a Morgan Stanley real estate analyst, says it could be costly for some retailers to convert Frank’s properties, with outdoor selling space, into more typical retail shells. “I don’t think it’s safe to assume they will all be replaced by someone,” he said.

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