Editor's note: Mark Falanga, president of Merchandise Mart Properties Inc., addressed members of the Business and Institutional Furniture Manufacturers Association on Wednesday to "set the record straight " about "wildly outrageous rumors" circulating about the future of NeoCon, the North American contract furniture industry's most important show. A transcript of his statements obtained by Woodworking Network follows.
Since last October, I have heard and read some wildly outrageous rumors about our business. I heard that The Mart was converting to office, that Kraft Foods was moving into The Mart,that we were eliminating the 7th and 8th floor market suites and that this year or next would be the last NeoCon at The Mart.
Today, I’m here to set the record straight and to tell you that there is absolutely no truth to any of these outlandish statements.
First of all, The Mart’s contract business is the strongest, most stable and longest standing business in our portfolio. It has been 100 percent occupied since 1998, has defined The Mart for the last 43 years and has grown more than any other aspect of our business. No rational owner, including Vornado, would consider anything but to move into the future with the contract industry leading the way and that is why we have renewed 120,000 square feet of contract showrooms this year and have leases with each of the eight major manufacturers, totaling another 237,000 square feet, going out from four to eleven years into the future.
Our 7th and 8th floors, which house temporary exhibitors for NeoCon, also accommodate temporary exhibitors for 19 other Mart-owned and produced shows a year. Producing these shows is how we deliver customers to Mart showrooms and without these shows, we would have no showrooms. The 20 shows we produce on floors 7 and 8 drive the rough equivalent of 20 years of rent per year and because of that, the 7th and 8th floors would be the last two floors we would ever take out of commission.
Since it opened in 1930, for the last eight-plus decades, The Mart has had a mix of office tenants that have co-existed with showrooms, and so hearing about us pursuing office tenants at The Mart should not alarm anyone.
Since the 1950s, 25 to 40 percent of The Mart’s 4.2 million square feet of space, has been dedicated to corporate offices and the space allocated for office has always been established by what we cannot lease to showrooms, because our showroom rents are higher than our office rents.
Our office tenants are attracted to The Mart because of the creative energy the showroom and tradeshow activities bring to the building. The Mart’s office tenants, who by the way, buy tens of millions of dollars of your furnishings, like advertising giants WPP and Publicis, technology companies like Razorfish and JB Pritzker’s tech incubator, 1871, and The Chicago School of Professional Psychology, want to be here because you are their neighbors.
Our plans are to produce NeoCon indefinitely and we have announced dates for NeoCon’s next twelve years at The Merchandise Mart in Chicago to give you the comfort that NeoCon will be here forever. We are not eliminating NeoCon and would be out of our minds to even consider such a thing. The show is defining of what The Mart stands for, accounts for 20% of our profits and has a bright future.
To make sure that NeoCon continues to meet or exceed your needs and expectations, we are working with Tom Reardon and the BIFMA board to pull together a BIFMA advisory group that will provide us with your input on our marketing efforts, educational programming, Mart technology deliverables, and our attendee base. We are working to form this group soon so that its impact will be felt beginning NeoCon 2013.
I recognize that some of the programs I’ve initiated, since stepping into Chris Kennedy’s big shoes last July have in-part, fueled some of these wildly speculative rumors.I streamlined our staff to 365 employees, outsourced our former in-house ad agency to deliver more creative marketing campaigns and we started selling some of our non-core assets, like the office building and hotel we are in now, which we sold in January.
At The Mart, we are now in the process of re-locating 150 residential furniture, casual furniture and gift-wear showrooms, which have become intertwined with each other over the years. We are segregating these three industry groupings from one another and concentrating them by industry, so their customers can more easily shop The Mart and by doing so, those showrooms will sell more merchandise. Resulting from this process will be a block of vacant space, in the upper floors of the building, which we will lease, probably for office, because there is no demand now from our showroom tenants for additional space.
Vornado Realty Trust is the company that has owned The Mart and our company, Merchandise Mart Properties, Inc., since 1998, when Vornado acquired it from the Kennedy family. In Vornado’s 2011 annual report, Steve Roth, Vornado’s provocative chairman stated, that for Vornado everything is in play.
MMPI owns non-core residential and gift showroom buildings and a Canadian tradeshow company, and we have put them in play. If we sell those assets, it will be so that we can better focus on The Mart.
There are no plans today to sell The Mart or our U.S. tradeshows, but that’s not to say that someday these assets will be put on the market.
If The Mart is ever sold, it is most likely that the transition will unfold rather seamlessly, like it did when The Kennedys sold to Vornado in 1998, because The Mart is performing so well with its current mix of tenants, industries and shows. In that regard, the most probable scenario is that NeoCon and The Mart’s businesses would continue to be managed by the hundreds of people who currently manage our business, including me; that the industry groups that occupy showrooms at The Mart will continue to do so, like they have for the last 82 years; that showrooms and offices will co-exist, like they have since the building opened in 1930 and that the 7th and 8th floors will continue to accommodate the 20 shows owned by The Mart as they have since 1998.
Now, having said all this, I remind you that The Mart and NeoCon are not for sale and our plans are to produce NeoCon, with the 7th and 8th floor market suites forever, with the benefit of guidance from BIFMA’s advisory.
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