Bids due on (Red) Star Tribune's land (Dinosaur Media DeathWatch™)

Bids on the Star Tribune's five-block plot of land in downtown Minneapolis are due today, according to an offering memo obtained by the Pioneer Press.

The marketing of the 12.4 acres — billed as the largest private land holding in the central business district — marks a rare opportunity for developers. It also comes at a time when the Star Tribune and its owners, Avista Capital Holdings, are dealing with declining revenue and profit, and the extra cash could come in handy.

Last year, the Minnesota Vikings offered to pay $45 million for four of the five blocks in the parcel, which is adjacent to the Metrodome, but the deal fell through. The city of Minneapolis puts the assessed value of the property at $32.5 million, according to Pete Pelletier, a city of Minneapolis commercial appraiser. Some say the land could go for $4 million to $5 million an acre today, or up to $60 million.

Avista, a private equity firm, paid $530 million for the Minneapolis newspaper last year, borrowing the bulk of the money. The two classes of debt Avista took on to buy the Star Tribune now are trading between 10 cents and 70 cents on the dollar, depending on the day, an indication that the market is not confident the debt will be repaid.

The Star Tribune did not return calls seeking comment. An Avista executive declined to comment.

Avista has written down three-fourths of the value of its investment in the paper, according to published reports, and said in a recent Advertisement statement that it has hired the Blackstone Group, a financial turnaround firm, to analyze the company's finances.

In the statement earlier this month, Star Tribune Publisher Chris Harte said the newspaper "has sufficient liquidity and was current on all its debt payment obligations." He denied a report in the New York Post that the company was near bankruptcy, noting that "Blackstone has substantial expertise in balance-sheet restructurings through means other than statutory proceedings like bankruptcy."

In the case of troubled fast-food chain Wendy's International Inc., for example, a Blackstone review eventually led to the spinoff of Wendy's Canadian coffee and doughnut chain Tim Hortons Inc.

The Star Tribune was the worst performer in Avista's portfolio, according to an Avista marketing document obtained by the Pioneer Press, which says the team behind Avista has a track record of generating "realized proceeds" of 2.7 times the capital invested.

Revenue at the Star Tribune declined 14 percent from $356 million at the time of Avista's purchase to $306 million in 2007, and "relevant EBITDA" (earnings before interest, taxes, depreciation and amortization) also slid 14 percent, to $70 million, according to the marketing document. EBITDA is considered an indicator of a company's cash flow.

"You can survive depending on how viable and stable that cash flow is," said John Leiviska, head of corporate bond research for Advantus Capital Management, an investment firm in St. Paul. "But if it continues to melt at double-digit rates, it gets difficult really soon. There are only so many expenses you can cut."

"If I were the Blackstone Group, the first thing [I'd] try to ascertain is what kind of cash flow does the Star Tribune have to meet its debt and it's operating obligations," said Mark Sheffert, president and CEO of Minneapolis advisory firm Manchester Cos. "Second ... what things can we do to improve the free funds flow?"

But real estate observers offered mixed signals about how much interest there may be in the property for sale, the largest downtown acreage for sale in recent memory.

For one, financing the deal in the currently crunched credit market could be difficult for a prospective buyer.

And the land itself is less desirable for office space, located on the fringe of downtown Minneapolis where even the introduction of the nearby Metrodome stadium in the 1980s failed to spur development.

Also, the Star Tribune building at 425 Portland Ave. is considered Class B office space, one step below Class A, which is considered the most desirable with the most amenities. According to the offering memo, the Star Tribune intends to consolidate its headquarters into the 425 Portland Building and lease it back from the new owners. At the average Class B rental rate for downtown Minneapolis of $9.68 per square foot, that could amount to roughly $3 million a year in rent.

Downtown Minneapolis already has a 15.4 percent vacancy rate and, for Class B, an 18.9 percent vacancy rate at year-end 2007, according to January's Outlook report by United Properties, a commercial real estate firm. The optimum vacancy rate is considered around 10 percent.

Rick Collins, a vice president of development for Minneapolis-based Ryan Cos., noted many of the negatives but does see the newspaper's willingness to lease back space as a positive.

"One of the very strong positives of the Star Tribune site is the critical mass; that it's a multiblock site so it provides any developer the opportunity to create a vision for a project of significant enough size as to have an impact on that side of the downtown core," he said.

How some or all of the Star Tribune property for sale could be used in the future depends on whether the Minnesota Vikings remain nearby at the Metrodome, and whether the NFL franchise would be interested in developing some of the property, said Ralph Burnet, chairman of the Coldwell Banker Burnet real estate company.

The Minnesota Twins and University of Minnesota Gophers football team, the Metrodome's other major tenants, are building their own new venues and soon will exit the stadium.

"The real estate market is not as firm as it was three or four years ago," said Burnet, developer of the Chambers Hotel and the soon-to-open W Hotel in downtown Minneapolis. "I think a lot of people are sitting back and waiting."

Nicole Garrison-Sprenger can be reached at 651-228-5580 or ngarrisonsprenger@ pioneerpress.com. Gita Sitaramiah can be reached 651-228-5472 or gsitaramiah @pioneerpress.com.

McClatchy CEO: ‘We will work through this transition’
By Dale Kasler - dkasler@sacbee.com
Published 10:44 am PDT Tuesday, May 13, 2008

The McClatchy Co.’s chairman and chief executive tried to reassure shareholders Tuesday that the Sacramento publisher is on the right track despite falling profits, revenue and stock price.

Gary Pruitt, addressing the annual shareholders’ meeting in Sacramento, also said the company is open to selling its 49.5 percent share of the Seattle Times Co. It acquired the stake as part of the purchase of Knight Ridder Inc. in 2006.

Pruitt said he has told the Blethen family, which owns the rest of the Times Co., that it’s interested in selling the minority share at some point. McClatchy has repeatedly written down the value of its stake in the firm. It now values its share at $12.1 million, down from $19.3 million at the end of 2007.

“Long-term, we would be open to selling” the stake, Pruitt said in response to a shareholder’s question.

As for McClatchy overall, Pruitt acknowledged that he doesn’t know when the company’s decline in revenue will end. But he said McClatchy, by focusing heavily on Internet operations, is poised for recovery once the economy improves.

“We are confident we will work through this transition,” he said.

McClatchy has struggled with weakness in the economy and the ongoing migration of business to the Internet. Although its online revenue is up, it hasn’t grown fast enough to offset declines in print revenue.

McClatchy stock rose 5 cents a share, to $9.33, in trading on the New York Stock Exchange.

http://blogs.citypages.com/blotter/2008/05/strib_bankruptc_2.php

Strib Bankruptcy Watch: Land ho!

The Strib has sprung a leak. A story in today’s Pioneer Press reveals that the St. Paul rival obtained an “offering memo” indicating that bids on the newspaper’s downtown office space are due today. The story says the land could fetch “$4 million to $5 million an acre today, or up to $60 million,” but that might be overly optimistic considering the soft real estate market and the not-prime-downtown location of the land. It remains to be seen whether the Vikings will make a play for it, but Lester Bagley, the team’s veep for public affairs, recently told Jonathan Kaminsky, “We believe that the property will be part of an eventual stadium development package or project regardless of who owns it.”

Buried a bit deeper in the story is a window into the dire financial situation at the Strib. Citing an “Avista marketing document,” the Pi-Press reveals why Avista may be looking to bail out of the Minnesota newspaper market:

The Star Tribune was the worst performer in Avista’s portfolio, according to an Avista marketing document obtained by the Pioneer Press, which says the team behind Avista has a track record of generating “realized proceeds” of 2.7 times the capital invested.

Revenue at the Star Tribune declined 14 percent from $356 million at the time of Avista’s purchase to $306 million in 2007, and “relevant EBITDA” (earnings before interest, taxes, depreciation and amortization) also slid 14 percent, to $70 million, according to the marketing document. EBITDA is considered an indicator of a company’s cash flow.

Key words: Worst performer. Avista is not a newspaper company—it has holdings in healthcare and other industries. If it can find a way to get out from under the Strib and park the investment in a more lucrative concern, it’ll do so in a New York minute.

Posted by Kevin Hoffman at May 13, 2008 10:47 AM

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