Inside the Deal: New Playing Field

According to the Toys "R" Us jingle, the childhood ideal is to be a "Toys "R" Us kid." And when the toy retailer moves into its new world headquarters later this year, there just might be a few adults wanting to join the Toys "R" Us family, too.

"Everybody's interested and excited (about moving)," said Chris Kay, executive vice president & general counsel for Toys "R" Us Inc. Several of the company's more than 1,600 employees visited the new corporate campus as part of a companywide meeting, while others have studied a video and pictures of the 194-acre site, which houses the two buildings totaling 575,000 square feet they will soon call home.

The Pointview Corporate Park in Wayne, N.J., is nothing if not picturesque. Located less than 12 miles away from the company's current headquarters in Paramus, Pointview is situated on a hilltop among 1,100 wooded acres, in the shadow of a mountain range and right next to a 450-acre reservoir.

It should also achieve increased operating efficiency. "Strategically, the new headquarters will be very beneficial to our current operations and to future growth," Kay said.

Currently, the company's seven divisions?which include Toys "R" Us USA, Toys "R" Us International, Kids "R" Us, Babies "R" Us, Imaginarium, Toysrus.com and Babiesrus.com?are spread out across Northern New Jersey. The company has been in its current headquarters in Paramus since the late 1980s and eventually expanded to three other facilities, two in Montvale and one in Fort Lee. "By bringing them all together under one roof, it will be a lot easier to run our business more effectively and efficiently," Kay noted. For example, departments will be able to share success stories and certain corporate services such as legal and marketing, which they were not able to do effectively when housed in multiple facilities. Kay noted that sharing services is one way of driving down costs, which is very important to Toys "R" Us president & CEO John Eyler Jr. and has been a mandate since he took on the top slot in January 2000.

Pointview was the site of the American Cyanamid Corp. world headquarters until American Home Products acquired the company and vacated the campus in the mid-'90s. In 1997, WP Commercial L.L.C., at the time Wellsford Commercial Properties Trust, bought the campus?four buildings totaling more than 700,000 square feet and 200 acres of land?for $16 million. Over the course of about 18 months, WP Commercial spent about $10 million to renovate and rehabilitate the buildings, replacing 3,000 windows and the HVAC systems, as well as other upgrades.

During that time, WP aggressively marketed the campus and was able to sell and lease the two smaller buildings (totaling 150,000 square feet), but finding a buyer for the remaining 575,000 square feet of buildings was more challenging.

Director of development and acquisitions Samuel Morreale already had the perfect candidate in mind. He believed Pointview would offer Toys "R" Us an excellent opportunity to consolidate its multiple locations. Additionally, he thought Pointview inspired creativity, essential for a company founded on fulfilling children's desires. "I felt it would present the right kind of environment (for Toys "R" Us)," Morreale said. But the Toys "R" Us executive team was not interested in relocating the company's headquarters to Pointview.

WP Commercial was starting to get the idea that in searching for one large tenant it was elephant hunting, according to president & CEO Richard Previdi. He noted that there are not a lot of corporate tenants wanting to relocate to a campus of the size and in the location of Pointview. Pointview is not a trendy place to locate an office, Morreale pointed out, but a "timeless, classic corporate environment." He observed: "The strengths of the property could also be considered its challenges." Indeed, the surrounding area is rather secluded and lacks the bustle of an urban setting.

However, having received significant interest from companies interested in leasing a portion of the campus, the WP Commercial team began to brainstorm for ways to make the campus friendlier and more manageable to smaller tenants. "We didn't stand around with our hands in our pockets waiting for the perfect tenant," Morreale said. "We got very creative. But it all came back to the scale of the property, which lent itself to a single user."

With that in mind, the company envisioned three distinct possibilities: the corporate user, a training/conference center or a college. After much internal discussion, the company decided that a training/conference center had the most merit because it would attract smaller tenants. That idea soon evolved into a bigger, better one: a resort-style hotel that could provide training and conference center space, along with a golf course.

The WP Commercial team went to work on a plan that would turn the Pointview campus into a four-star hotel, conference center and golf course. The company petitioned Wayne Township for overlay zoning and received approval. The new zoning preserved existing zoning for 575,000 square feet of office but added zoning for the hotel and conference center as well as residential zoning for luxury townhouses.

According to Previdi, before the overlay zoning was in place, the company (and potential buyers) had trouble assessing the value of the Pointview campus. "The overlay zoning helped create a market price and enabled everyone to establish the value of the deal," Previdi said. In addition to clarifying the actual value of the asset, the overlay zoning acted as a built-in cushion for risk-averse buyers. Morreale noted: "The overlay provided the future owner with an exit strategy or even the ability to downsize by selling off acreage."



A New Look at Consolidation

While WP Commercial was preparing to move ahead with its plan, just a few miles away Toys "R" Us was adjusting to a new executive team?one that was interested in consolidating its offices. Drawing on Morreale's previous relationship, WP Commercial again approached the toy retailer. This time, after careful consideration, Toys "R" Us agreed. It purchased the Pointview campus (except the two smaller buildings ) from WP Commercial for $36.5 million, meeting the expectations of both companies.

The new team had evaluated several sites in New Jersey and New York. In fact, early in the search, Toys "R" Us had considered expanding its presence in Montvale, where the company already owned existing buildings and additional land. Although Toys "R" Us does not own the majority of its retail stores, the company performed an in-depth financial analysis comparing the benefits of leasing those of owning and decided that owning its own headquarters was more fiscally responsible.

After visiting the Pointview campus twice, the executive team determined that relocating the corporate headquarters would be a positive move for the company, and Pointview was the best option. The board of directors agreed. "In the end, we decided to go with (Pointview) based on its attributes," Kay said.

Pointview's proximity to Toys "R" Us' current facilities was one of its key advantages. The company had been based in New Jersey for several decades and had many longtime employees who had located their homes near the current offices. "We didn't want to make (the commute) difficult for our current employees," Kay said.

Toys "R" Us also liked Pointview's existing office space, which allowed the company to move in sooner. The executive team believed that the sooner it could move to its new headquarters, the better off the employees and company would be. And existing buildings in New Jersey available for lease that met the company's space demands were scarce, Kay said.

Still another attraction was the acreage that makes it possible for future growth and expansion. "If we develop new departments or new companies like we did with Babies "R" Us, we'll need to have additional buildings," Kay said.

Since Pointview's original use had been as a corporate campus, many issues related to occupancy had already been resolved. But the company had to consider environmental and governmental issues as they related to future expansion. Issues with the sewer, water supply and traffic flow had to be addressed, as well as wetlands and topography concerns, Previdi said. Fortunately, WP Commercial had studied all of these issues in depth during the years it worked to renovate the campus and find a tenant or alternate use for the property. "We gave (Toys "R" Us) a road map," Previdi said.

WP Commercial took a consultative approach with Toys "R" Us to help the company get comfortable with both the property and Wayne Township. "We worked in partnership," Previdi said. And Kay agreed: "We tried to share information on both sides of the table. Both sides worked remarkably well together."

Toys "R" Us' relationship with Wayne Township was another positive for the Pointview campus. Kay termed the relationship "good" and said Toys "R" Us is looking forward to moving there.

Previdi noted that Wayne has been very accommodating and accessible. "Never in my experience has a town worked harder than Wayne to make sure a corporate citizen was happy," he said. "Our biggest ally was the town of Wayne." He added: "The town of Wayne is happy to have (Toys "R" Us). To find a municipality that receives you with open arms?it's a home run."



Preparing to Relocate

Currently, Toys "R" Us is hard at work preparing for the relocation to Pointview. In fact, the retailer already has plans to add to the campus. It submitted plans to Wayne Township for a new 500-person lecture hall and a fixture laboratory, which gets its name from the fixtures in the retail stores on which products are placed. The new lab will allow Toys "R" Us to lay out stores on its campus rather than use virtual modeling. Kay believes the addition of the fixture lab will allow Toys "R" Us to determine the best layout for its stores and products, thereby providing its customers with the best possible shopping experience. The lecture hall will be used to improve employee training, particularly for the sales team. Toys "R" Us also plans to renovate the current cafeteria, as well as update the fitness room.

According to Kay, the Toys "R" Us executive team has a clear vision of the company's future, both for its retail stores and its headquarters. Indeed, Kay noted that Toys "R" Us' executive team was paramount in acquiring Pointview. "The leadership of this company can see the growth that is inherent in this company," Kay commented. "They're visionary." He added: "We believe that we'll be able to do our jobs better at the new corporate headquarters."