The Real Deal New York

Walgreen values Duane Reade leases at $73M


April 30, 2010 02:29PM
By Adam Pincus

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alternate textWalgreen valued Duane Reade leases, including 230 Park Avenue (left) and 250 Broadway (right), at $73 million

New York City leases for the hundreds of Duane Reade stores that dot the five boroughs and give the chain a local dominance were valued at $73 million, tax recording documents filed with the city Department of Finance this week show.

The filings were made April 9, the same day Illinois-based Walgreen announced the completion of the $1 billion purchase of Duane Reade from private equity firm Oak Hill Capital Partners, but the tax records were not published until Wednesday.

The valuation for each individual lease covering the approximately 250 properties was not included in the filings. Also, at least a half-dozen of the properties were not currently occupied by Duane Reade stores.

Walgreen said there were 258 Duane Reade locations in the metro area including Long Island and New Jersey, when it announced the purchase this month.

The value of Duane Reade leases is a prominent issue in the ongoing trial in federal court in Lower Manhattan of two former executives of the drugstore chain. Anthony Cuti, who was CEO, and William Tennant, who was CFO, are charged with securities fraud for using allegedly bogus lease deals to boost earnings.

Prosecutors said Cuti referred to revenues from Duane Reade real estate transactions as a “special sauce,” that was one of the major sources of income for the company during his tenure. The government claims Duane Reade sold dozens of virtually worthless leases for millions of dollars, although many were near their expiration, to companies controlled by Winick Realty Group CEO Jeff Winick, to boost earnings. Winick’s companies were paid back on the round-trip transactions, prosecutors said. Neither Winick Realty nor Jeff Winick is charged in the case.

The filings with the city, which are not related to the trial, report the value of the real estate properties that were transferred as well as the city and state tax paid. The total tax was $2.2 million.  

“[The filing] is the tax on the fair-market value of the real estate being sold or transferred,” Adrian Zuckerman, partner at Epstein Becker & Green, who heads the firm’s real estate department, said. He was speaking generally about the transfer tax, and is not involved with the Walgreen purchase. A spokesperson for Walgreen declined to comment on the tax filings.

Some of the properties listed included major leases, such as at 230 Park Avenue at 45th Street in Midtown and 250 Broadway at Park Place in Lower Manhattan. 

The 20-year 230 Park Avenue lease signed in June 2001 was for a gross amount of $27 million, and the 15-year lease at 250 Broadway was for a gross amount of $17 million, according to Winick Realty Group leasing records published in the trial. Winick Realty is the preferred broker for Duane Reade, and handles most of the drugstore’s real estate transactions.

And real estate insiders cautioned that the $73 million value for the leases as part of the purchase could be different from the market value of each lease if appraised individually, because the leases were purchased as part of the much larger $1 billion transaction.

“It is not necessarily an indication of the true value of the leaseholds because it is an allocation of the aggregate purchase price for a variety of different types of assets,” Andrew Herz, partner with Patterson Belknap Webb & Tyler, said. He is not involved in the Walgreen purchase.

Several of the addresses listed that do not currently have a Duane Reade store are 440 Ninth Avenue at 35th Street and 505 Eighth Avenue also at 35th Street, city property records and the Duane Reade Web site, show.

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