by Jordan Green
As the Great Recession unreeled beginning in late 2008 and early 2009, furniture sales took a hit in High Point and Las Vegas, the two great international furniture markets in North America. The industry was ripe for reorganization.
Overnight, High Point’s largest chunk of furniture-showroom real estate transferred to Las Vegas. The details of the deal dribbled out in March 2011. Bob Maricich had joined the World Market Center in Las Vegas as CEO in January 2008 after spending 11 years leading Century Furniture Industries, based in Hickory.
Maricich put together a new company, based in Las Vegas, called International Market Centers that acquired the World Market Center there and began buying up the largest showrooms in High Point with major financing from Bain Capital and Oaktree Capital Group in March 2011.
The biggest showroom in High Point, the International Home Furnishings Center, takes up a full block of South Hamilton Street and dwarfs the Municipal Building, housing city government, across the street. With an assessed tax value of $74.7 million in 2009, a consortium of local interests owned the building at the time. A month after acquiring the International Home Furnishings Center, the new International Market Centers, or IMC, purchased the Market Square showroom, also from local owners. Completing its buying spree, IMC closed on Showplace, a giant showroom in High Point that resembles a wave, taking it off the hands of a Chicago investment group.
While High Point faced challenges, it was troubles with the market in Las Vegas that precipitated Maricich’s courtship with Bain.
“We formed the company to buy the assets of all three buildings [in Las Vegas], the 59 acres; it was in foreclosure,” Maricich told home-furnishings reporter Ellen Gefen, “as well as buying two properties in foreclosure here in High Point: Merchandise Mart properties and Showplace properties.”
Maricich has said that IMC raised about $1.1 billion to buy the High Point properties, with about 92 percent of the financing coming from Bain and Oaktree.
Once led by Republican presidential candidate Mitt Romney, Bain’s reputation for snapping up distressed businesses, squeezing out the profits and then ruthlessly decommissioning them was highlighted during the 2012 election.
But in 2011, as Maricich unveiled IMC and attempted to calm the nerves of industry operatives in High Point and Las Vegas, the CEO argued against that notion.
“If you look at this investment of over a billion dollars — about a billion and one — there’s no financial thesis where shrinking or closing or cost-cutting is a way to success,” Maricich told Gefen. “The way to success is growing, putting buyers and sellers together more often, more effectively and more efficiently.”
As a result of IMC’s buying spree, the company’s real estate holdings in High Point total $268.3 million, or 42.6 percent of the entire downtown. The next largest competitor, Maple Leaf Holdings — owned by Statesville businessman David DeFehr — controls less than a tenth of what IMC owns. Prior to the merger engineered by Maricich, International Home Furnishings Center was the largest real estate owner in High Point, with properties valued at $150.7 million, or 19.7 percent of the market.
While IMC has consolidated control over the premier showrooms in High Point, a host of smaller players have clung to smaller properties scattered about downtown, attempting to wring out profits by leasing space to exhibitors at lower rates. Steele Street Partners of Winchester, Va. has hung on, while the Greensboro owners of the Commerce & Design building sold their property to an investment group from southern California for 15.7 percent below assessed value in 2012.
The consolidation of the furniture industry and the shakeout of mid-level players has coincided with a dramatic shrinkage of aggregate real estate wealth in downtown since the beginning of the recession. Exactly 20 percent of downtown High Point’s real estate wealth has evaporated, from $764.1 million in 2009 to $629.2 million in 2014, with a eight-year revaluation by the Guilford County Tax Assessor falling in 2012.
In comparison, downtowns in the neighboring cities of Winston-Salem and Greensboro have experienced robust growth through the recession, with the development of the Wake Forest Innovation Quarter in the former and new investment around the Downtown Greenway and the Rail Yard area in the latter. While the overall tax base rose across Guilford County during the 2012 revaluation, the opposite occurred in High Point.
As a result of the erosion of the tax base in downtown High Point, primarily because of the deterioration of showroom values, the city of High Point has lost $687,263 in annual tax revenue, while Guilford County has lost $774,999 To make up for the resulting shortfall in revenue, the city raised the tax rate in 2012.
“I had a very simple conception of what had been happening here in terms of the International Market Center and this very strange relationship you have to your downtown, which is dominated by a single entity,” Andrés Duany, an urban planner from Miami, told a High Point audience in May 2013. “It’s the most complete monoculture I’ve ever seen with the International Market Centers.
“It serves you well because it pays you a great deal of taxes,” Duany continued, “but on the other hand when it’s gone the whole downtown hibernates. And you’ve actually adjusted to this very peculiar position.”
As the city’s greatest single asset, Duany said, the furniture industry is also the greatest threat to the city.
“The tax base comes substantially from one great monoculture,” he said. “If that monoculture sneezes, there’s not much of a Plan B. Already, your housing taxes are higher than your competing cities nearby. So this is a place without a Plan B.”
Duany came to High Point for a sizable fee covered by a group of private investors, including High Point University, at the invitation of the non-profit City Project to come up with a strategy for catalyzing reinvestment in the city’s core. At the heart of Duany’s recommendations is to make High Point appealing to educated, poorly capitalized young people with the notion of creating an entrepreneurial cohort to eventually diversify the city’s economy. A master plan produced with local architect Peter Freeman laid out a number of specific recommendations, including redeveloping an area called the Pit, creating a public gathering space in front of the downtown library and de-emphasizing car traffic on North Main Street.
Just when many revitalization supporters hoped the plans would begin to bear fruit, the city council redirected City Project’s executive director, whose salary is paid by the city, to a broader, less targeted portfolio of responsibilities. Council members have balked at the notion of reducing car traffic on North Main, which would require a bond referendum. They’ve resisted efforts to replace surface parking in front of the library with a public gathering place, while approving halting progress on the Pit. Duany’s enthusiasm for the idea of sprinkling shipping containers around empty parking lots and inviting in retailers and restaurateurs met with particular disdain from elected officials.
With council members mired in parochial concerns from their constituents in the city’s six wards, a unified vision around a single, transformative project seems like an ever-diminishing prospect.
A blistering assessment by Maricich, the IMC CEO, to a group of furniture-industry insiders at the High Point Country Club in late March should have provided a jolt to city council.
“We need a market district,” the High Point Enterprise quoted Maricich as saying. “The oversupply of showrooms doesn’t add to the vibrancy. There’s 1.5 million square feet of empty showroom space that’s never again going to be filled.”
The newspaper quoted Maricich as saying that the High Point market is 50 percent more expensive to attend than the World Market in Las Vegas, and that Bain Capital and Oaktree Capital Group, as the company’s principal investors, hold certain expectations for financial performance.
“They are private equity companies,” Maricich was quoted as saying. “They get into an investment and they get out of an investment, so we have to find a way to monetize their interest.”
In an email to fellow council members the next day, Councilwoman Becky Smothers suggested Maricich was bluffing, writing about “a real-estate deal that gave the Vegas
investment breathing room by combining it with the High Point market that had established itself as the premier market; recession helped it along, too, but the value and commitment was on the east side of the Mississippi… he was smart enough to recognize that.”
Councilwoman Judy Mendenhall fired off a message from her iPad.
“For some of you who are not aware, I will tell you that in the midst of the battle with Las Vegas, while I was present of the [High Point] Market Authority we did a full-page ad for Furniture Today in which this same Maricich was featured talking about how great the HP Market was, how it was light years ahead of Vegas and soooo much more important… before time for the ad to run he resigned his furniture manufacturing post and accepted the Vegas job… we at the Market Authority took great delight in running that ad prior to the upcoming market… he has often spoken with forked tongue.”
The city council had considered creating a market overlay district to create opportunities for year-round retail in downtown prior to the recession, but pulled the plug because of the
thought that it would discourage investment from showroom owners. Now, Councilman Jason Ewing thought it might be time to dust off the plan.
“I’m not as concerned about losing the market to Vegas as I am about ‘containing the beast,’” he wrote in an email to his colleagues. “If we are truly working towards improving our core and trying to create opportunities for retail restaurants and other 365 businesses, we need to outline an area that investors, developers and business owners can have comfort in knowing that adjacent space will not be turned into a market showroom that is only open a few weeks out of the year.”
Councilman Jay Wagner responded: “I’m in. But let’s do it right this time.”
The rhetorical shot across the bow from Maricich apparently did little to create a sense of urgency among council members.
As to whether the political will is there to develop a market overlay district, Smothers said in an interview last week: “It hadn’t been discussed other than just in passing.”
Councilman Britt Moore contributed a sentimental and fatalistic lament laced with sarcasm to the conversation.
“For me it proves that [Maricich], and many others in many industries, have been very astute over the last 30 years or so at recognizing the economic trend in front of them,” Moore wrote. “And as such have made large amounts of money. I’m envious. Excellent short-term visionaries. Very successful (subjective). Of course, it is well known that I am stuck in the 20th Century. I’m hung up thinking more about the long-term effects to a country, a culture and a people, a municipal tax base, cities, sovereignty.
“I think of the local, long-time family-owned furniture manufacturer that was quoted in the paper during the last market,” Moore continued. “He admitted over the previous 20 years he had moved more to importing 300 containers a year… ‘until he realized what it did to a country.’ Of course, dieting a street, using the empty containers and filling them with restaurants and retail stores that sell imported products should solve our problems quickly… forgive my rant. No apologies.”
In a later email, Moore said that considering that the United States has become “dependent on foreign manufacturing,” he reluctantly agreed with the idea of a market overlay district.
“The majority wants to continue and address the symptoms, so I acquiesce,” Moore wrote. “Apathy is rampant.”
While numerous storefronts in downtown High Point remain vacant, the IMC’s smaller competitors have little incentive to bring in year-round retail and restaurants because of the higher fees they can earn from leasing the space to furniture exhibitors two weeks out of the year.
“For a long time the prevailing attitude was, ‘I’ll sit on it, it’s paid for, they will come,’” Smothers said in an interview. “That happened for a lot of them. With the smaller spaces, they didn’t even have to use the upper part of the building. Look at where the Center Theater used to be. It still has a marquee on the outside. They might use the upper floors for storage, but that’s about it.”
On July 1, a Houston-based real-estate firm sold the building to George Chi Chu Chen, who owns Acme Furniture in the Los Angeles area. The seller fetched a price just below the $3.8 million assessed value of the building.
Various cities have imposed restrictions on street-level storefront properties in their downtowns to encourage desired uses, but the idea hasn’t resonated with elected officials in High Point.
“Asheville’s got that, as does West Palm Beach,” said Joe Minicozzi, an Asheville-based consultant who produced a report for City Project on the economic benefit of encouraging pedestrian activity in the Uptowne area of High Point. “On prime streets where you have a lot of pedestrian traffic, 75 percent of the ground floor needs to be occupied with retail use 30 feet in from the street. You need to have a transparent façade with glass so that it invites people in.”
Smothers laughed at the idea.
“If we’re going to go in and say to someone, ‘You have to keep this open six days a week until 2 a.m. in the morning,’ okay,” she said. “That would go over real well.”
While the Center Theater building has retained its value, other properties on the market have not fared so well. Even since the most recent revaluation, properties in downtown High Point continue to sell below assessed value.
The old Wood-Armfield building on South Main Street transferred from an Oklahoma investment group to a southern California buyer for $1.6 million — 62.8 percent below assessed value — in August 2013. Man Wah (USA) of Hickory purchased a building at 622 N. Main St. from American Signature Designs of Columbus, Ohio for $460,000 — 28.4 percent below market value. And what little residential real estate exists downtown has not been immune to the downturn: A condo on West High Avenue blocks away from the Amtrak station sold on May 15 at 10.9 percent below assessed value.
As an indication of functional obsolescence, the value of prime real estate investment property
in downtown High Point has also plunged.
A consortium of investors that includes members of the Samet family has owned 3.1 acres at the southwest corner of Kivett Drive and Centennial Street since 2001. The raw, undeveloped land was valued at $2.5 million in 2009 and dropped to $1.7 million in 2014.
Duany said in May that no one should assume the furniture market is immune to the forces of globalization that have resulted in the off-shoring of one industry after another in the United States.
Smothers said she’s not aware of any contingency plans if High Point were to lose the furniture market.
“The city didn’t have any contingency when hosiery went offshore and we went from whatever number of hosiery mills to two now,” she said. “I don’t think Winston-Salem had a contingency plan when people stopped smoking cigarettes as much. The world changes. Fortunately, there are people who have the skills to be adaptive.”
High Point resembles the company towns of the past, like Greensboro before Cone Mills and Burlington Mills declared bankruptcy or Winston-Salem when RJ Reynolds and Hanesbrands dominated. The difference is that the furniture market is not a paternalistic local presence, but rather more like an occupying power governed by the whims of its investors.
Being an outsider, Duany said he can see clearly what people who live in High Point might not want to admit.
“God, this place,” he said, “all the eggs are in one basket. That’s unfair because this is a huge basket.”
Downtown High Point real estate, by the numbers
• Percentage of downtown real-estate wealth that has evaporated over the past five years: 20
• Annualized loss of downtown real-estate wealth (percentage): 4
• Amount of tax revenue lost by the city of High Point due to deterioration of downtown tax base since 2009: 687,263
• Amount of tax revenue lost by Guilford County over the same period: 774,999
• Amount of real-estate wealth in downtown High Point controlled by IMC (millions of dollars): 268.3
• Percentage of downtown real-estate wealth controlled by IMC: 42.6
• Percentage of downtown real-estate wealth controlled by wealthiest property owner (International Home
Furnishings Center) in 2009: 19.7
• Number of properties controlled by IMC today: 34
• Acreage controlled by IMC: 42.7
• Total acreage of downtown High Point: 382.3
• Average value per acre of properties controlled by IMC (millions of dollars): 6.3
• Average value per acre of all downtown properties (millions of dollars): 1.6
• Amount of real-estate wealth controlled by the next largest owner (millions of dollars): 21.8
• Factor by which IMC’s real-estate holdings exceed those of the next largest number: 12.3
Largest property owners in downtown High Point, 2014
1. International Market Centers, Las Vegas (showroom) — $268.3 million
2. Maple Leaf Holdings (David DeFehr), Statesville (real-estate investment) — $21.8 million
3. The Golf Warehouse, Wichita, Kan. — $18.0 million
4. Steele Street Partners, Winchester, Va. (showroom) — $12.4 million
5. Sabal Financial Group LC, Newport Beach, Calif. (real-estate investment) — $11.0 million
6. Bruce Hughes, Randleman (rental real estate) — $10.2 million
7. Natuzzi Americas, High Point (showroom) — $9.8 million
8. High Point Bank, High Point (banking) — $9.6 million
9. Cornerstone Properties LLC, Rancho Cucamonga, Calif. (real-estate investment) — $8.8 million
10. Inner Circle High Point LLC, Ormond Beach, Fla. (hotel) — $6.9 million
11. Zaki Uddin Khalifa (Zaki Oriental Rugs), High Point (import) — $6.3 million
12. Dorado Highpoint LLC, San Diego, Calif. (real-estate investment) — $5.8 million
13. Hamilton Square LLC, High Point (showroom) — $5.7 million
14.Wells Fargo, Carlsbad, Calif. (banking) — $4.6 million
15. Community Housing Concepts Sheraton, Denver (low-income housing) — $4.3 million
16. Acme Furniture, City of Industry, Calif. (furniture sales) — $3.9 million
17. Frienz LLC, High Point (real-estate investment) — $3.6 million
Yihua Furnishings, Shantou City, Guangdong, China (wood flooring, furniture production and marketing) — $3.4 million
19. Bank of America, Charlotte (banking) — $3.2 million
20. HMM Associates, Hickory (real-estate investment) — $3.1 million
Largest property owners in downtown High Point, 2009
1. International Home Furnishings Center, High Point (showroom) — $150.7 million
2. Walton Street Capital, Chicago (real-estate investment) — $69.7 million
3. Market Square AC I LLC, High Point (showroom) — $35.2 million
4. Market Square II LLC, High Point (showroom) — $34.8 million
5. Maple Leaf Holdings (David DeFehr), Statesville (real-estate investment) — $27.1 million
6. Mississippi National Mart, Houlka, Miss. (furniture sales) — $20.0 million
7. Market Square Furniture, High Point (showroom) — $18.8 million
8. National Furniture Mart (NC) LLC, High Point (furniture sales) — $17.0 million
9. Market on Green LLC, High Point (showroom) — $15.3 million
10. Commerce & Design Associates, Greensboro (showroom) — $14.8 million
11. Steele Street Partners, Winchester, Va. (showroom) — $12.4 million
12. Natuzzi Americas, High Point (showroom) — $11.7 million
13. Boykin Management Co., Houston (hospitality) — $11.7 million
14. Bruce Hughes, Randleman (rental real estate) — $11.4 million
15. C. Wayne McDonald, High Point (real-estate development) — $10.4 million
16. High Point Bank, High Point (banking) — $10.3 million
17. Market Square-Hamilton, Paramus, NJ (showroom) — $8.2 million
18. Showplace Properties LLC, High Point (real estate) — $8.1 million
19. Zaki Uddin Khalifa (Zaki Oriental Rugs), High Point (import) — $7.4 million
20. Westmor Properties, Edmond, Okla. (real-estate investment) — $6.5 million
The author of this study used a map produced by the High Point Planning & Development Department under the Core City Plan to determine the footprint of downtown. For the purposes of this study, downtown is comprised of two non-contiguous Showroom districts, the Downtown Mixed-Use District and six blocks of the Medical Area (for purposes of coherence). The downtown area (see map) is roughly bounded by Centennial Street in the east; Taylor Avenue in the south; English Road and Meadow Place in the west; and Westwood and Richardson and Richardson avenues in the north.
All property information was drawn from the Guilford County Tax Department, while information about corporate ownership came from the Corporations Division of the NC Secretary of State’s office.