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They say that one man's trash is another man's treasure.

In these turbulent economic times, when one store seems to thrive while its neighbor flounders, this saying has never been more true. For evidence, look no further than the disintegration of Montgomery Ward and its effect on a real estate sector hungry for space.

Ward celebrated the holiday season by filing for Chapter 11 bankruptcy Dec. 28. The company expects to close all of its stores, which are in 30 states, by spring. The nail in Ward's coffin was a horrible holiday shopping season. And while some other retailers experienced less-than-stellar Christmas sales, Ward's results were dismal.

That has put some of the country's largest retail chains on the prowl, ready to gobble up additional space. Just about every big-box retailer seems to have their eye on at least one Ward location. But they'll have to convince the gatekeepers they are worthy of such prime space, much of which resides in attractive regional malls.

Late last week, a joint venture between Kimco Realty Corp. (NYSE: KIM), Simon Property Group (NYSE: SPG) and the Schottenstein Group were awarded asset designation rights for Ward's real estate property interests. This includes 315 separate properties, 250 of which are former Montgomery Ward retail locations. That means the group can sell Ward's existing leases, or create new leases for new tenants.

The partners won designation rights through an auction at bankruptcy court. They will make an up-front payment of $60 million for the rights, but could end up paying as much as $435 million, depending on how well they sell. Anything they earn above that amount will be split between the partners and Ward.

But the cash is not the only benefit to the partners, especially Simon Property. Up to this point, Simon has controlled 10 percent of Ward locations. Buying designation rights will allow Simon Property to decide whom its new tenants will be in former Ward locations.

What's more, one of the retail industry's more healthy competitors already has scooped up leases at 35 former Ward stores. Target plans to open 30 or more of them as Target stores in 2002 after extensive remodeling. The remaining five stores may end up under the auspices of the Mervyn's or Marshall Field's brands, also controlled by Target.

Other potential lessees include Kohl's Corp., May Department Stores Co. and Federated Department Stores, Inc. Many of the former Ward locations are considered prime space, ripe for takeover by mid- and high-end department stores.

Some industry insiders believe Kimco already has lined up lessees for at least half of the abandoned properties. And those new leases may be significantly higher than current Ward rates. Average rents in some Ward stores were thought to be from $2 to $4 per square foot, while new leases could bring $6 to $12 per square foot.

Just goes to show that commercial real estate is more resilient and healthy than many give the industry credit for. A major retail concept may have failed after 128 years in business, but the demand for its precious space is still going strong.

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