Exclusive: Payless Sells its Longtime Headquarters in Sale-Leaseback Deal

Exclusive: Payless Sells its Longtime Headquarters in Sale-Leaseback Deal

The Transaction Includes a Six-Month Lease for the Discount Shoe Retailer

BY CANDACE CARLISLE  (via CoStar Group)

Payless occupies about 25 percent of the Topeka, Kansas property. Image credit: LoopNet.

Payless occupies about 25 percent of the Topeka, Kansas property. Image credit: LoopNet.

Payless ShoeSource has sold its longtime Topeka, Kansas headquarters in a $2 million sale-leaseback deal, a money-pinching move that comes as it recently filed for Chapter 11 bankruptcy, its second such filing in the last year-and-a-half.

The expansive one- and two-story office-and-industrial building totaling 306,941 square feet at 3231 SE 6th Avenue in Topeka, Kansas, sold to a private Houston-based investor in a short-term sale-leaseback through a 1031 exchange, a tax-savings maneuver in which the proceeds from one real estate transaction are promptly reinvested in another. The building was sold outside a planned auction in December, which was never held because Payless had apparently found its desired buyer.

A Payless spokeswoman did not immediately respond to an interview request about the sale of its corporate headquarters or say whether the budget-conscious shoe retailer, which produces about 110 million pairs of shoes each year, would continue operations in Topeka.

Payless had originally put its corporate headquarters on the market for $8.5 million in December 2017, but quickly discounted the property after brokers had a hard time finding a buyer. Later, the building’s price tag was $3 million before dropping again to $2 million.

In that time, Payless laid off hundreds of its Topeka employees and moved many of its corporate functions to a building in downtown Dallas. In all, Payless occupies about 25 percent of the building with remainder sitting vacant.

Mike Sladich, who represented Payless in the deal as a director based in Atlanta at real estate services firm Stan Johnson Co., confirmed the deal closed on February 14 with a six-month lease term. The undisclosed Houston investor represented himself in the acquisition of the 53-year-old property, which was last renovated in 1987.

“Because there was no long-term lease on the sale-leaseback it was basically a value-add property,” Sladich said, referring to properties that could be improved upon after purchase to enhance their value, “It was basically like buying a big vacant property.”

In court filings, Payless said its best prospects these days appear overseas. In its bankruptcy filing on Monday, Payless executives said, “Payless Latin America continues to demonstrate stable growth and is the company’s most profitable business segment,” and the franchise business oversees gives the shoe retailer “favorable,” royalty fees.

Last August, Payless relocated several of its departments, including buying, merchandising, marketing, real estate, legal and portions of its information technology, human resources and e-commerce business, to the eighth floor of Bryan Tower at 2001 Bryan St. in Dallas. The retailer has a lease for about 26,600 square feet of office space within the 40-story office tower.

Bryan Tower is a 40-story office tower in downtown Dallas. Image credit: CoStar.

“They probably got a good deal on an office lease in downtown Dallas, but also this gives them a new home base for international growth,” said John Schupp, a principal of retail development in Avison Young’s Atlanta office.

With that in mind, Payless could see a benefit in locating near a major airport hub, such as Dallas Fort Worth International Airport.

Beginning in June, Dallas Fort Worth International Airport is adding two more cities — Dublin, Ireland and Munich, Germany — to its growing list of non-stop flights to destinations overseas. With the two added cities the airport has 59 international destinations.

Meanwhile, the closest international airport to Topeka, the state capital of Kansas, sits about 74 miles away in Kansas City.

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