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McClatchy says it wants to sell and lease back its 18th and Grand headquarters building, but it smells like a sell

April 19, 2016 by jimmycsays

Ten months ago in this space, former KC Star business reporter Julius Karash predicted that The Star’s headquarters building would be going up for sale.

Congratulations, Julius, your reporting and crystal-ball instincts are as sharp as ever.

julius

Karash

Last Thursday, on Page 13A, Star reporter Mark Davis had a short story saying that McClatchy Co., The Star’s owner, was considering selling and then leasing back both the main building at 1729 Grand and the Press Pavilion a few blocks north on Oak.

Davis wrote: “A sale-leaseback provides cash to the seller and allows continued use of the property with no disruptions to operations, in this case producing and printing The Star and printing other publications. The lease agreement assures the buyer of a tenant and income.”

In theory, it’s one of those idyllic win-win deals. Everybody goes into the vault and tosses big bills in the air and lets them waft down on their heads. And with a debt of about $900 million, McClatchy could really use some cash in the vault.

But a sale-leaseback is not what Julius was predicting for the headquarters building, and I don’t trust The Star or McClatchy when management says that’s what it intends to do.

I believe McClatchy will do that with the Press Pavilion, because The Star is printing several papers there and I feel confident it’s making good money. But the three-story, brick headquarters building is another matter. Time was when about 2,000 employees worked in that building, with the printing presses whirring away in the sub-basement. Now, it’s down to several hundred employees, perhaps less than 500.

The Star doesn’t need that all that space for its editorial operation, and, as Julius pointed out in his June 2 guest post, the headquarters building is smack in the middle of the city’s hottest real estate market, the Crossroads.

“The super-charged pace of development in the Crossroads and Downtown makes 18th & Grand an attractive property,” Julius wrote. “It’s a beautiful, historic structure, built in 1909-11 and designed by Jarvis Hunt, the famous Chicago architect who also designed Kansas City’s Union Station. The site would be a great location for a business, residences or a combination of the two.”

McClatchy already has sold several of its newspapers’ headquarters buildings and others are going up for sale. And other newspaper companies are doing the same thing; those big old buildings, once so stately and symbolic of power and truth, are becoming dinosaurs.

…Not trusting anything McClatchy says, I can easily envision the day when McClatchy announces a sale-leaseback of the Press Pavilion and — surprise, surprise — also says it got an outright purchase offer on the headquarters building that was too good to turn down. And then they’ll move the remaining employees over to the Press Pavilion or rent editorial space somewhere downtown. (At least, I hope it’s downtown!)

More developments related to the future of The Kansas City Star could be forthcoming later this week. At or about the same time Publisher Tony Berg announced the proposed sale-leasebacks, he also called for an all-employee meeting Thursday morning at Union Station.

By all employees, I’m talking editorial, advertising, circulation, production — every department. During the 36-plus years I worked at The Star, I do not recall an all-employee meeting ever taking place. I have no idea what the meeting is about. I ran into a Star newsroom employee today at Costco and she said she had no idea what the subject of the meeting was. With things going the way they are with McClatchy and The Star, it’s hard to imagine that good news is coming on Thursday…As Warren Beatty’s character John McCabe tells Julie Christie’s character Constance Miller in the great Robert Altman movie McCabe & Mrs. Miller, “Money and pain. Pain and money…Money…Pain.”

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Posted in Uncategorized | 23 Comments

23 Responses

  1. on April 20, 2016 at 7:34 am Julius Karash

    Thank you for your vote of confidence, Jim! I am honored to receive such great play in your column. I hadn’t heard about the all-employee meeting scheduled for Thursday morning – I will be following that with great interest. I hope the remaining Star employees will stay downtown and that the venerable building at 18th and Grand will join the ranks of Crossroads redevelopment winners.
    Meantime, we should be on the lookout for McClatchy’s First Quarter financial results that are due to be released today.


  2. on April 20, 2016 at 7:51 am Brian

    Why would they have an all-employee meeting off-site at Union Station — and presumably pay for the meeting space –when they have their own building? Why wouldn’t they have an all-employee meeting at their own building? Unless it is some kind of quid-pro-quo between the new publisher and Union Station/downtown leaders, that doesn’t make sense to me. Any possible explanation about that?


    • on April 20, 2016 at 8:17 am jimmycsays

      I don’t know the reason for that. It just adds to the intrigue.


  3. on April 20, 2016 at 8:49 am Will Notb

    The Star/McClatchy ought to already be floating in all that money they saved from KC’s latest largesse – the continued tax abatement.

    Tell me – does that arrangement devolve to the putative buyer(s) of either/both facility(s)?

    The whole thing stinks.


  4. on April 20, 2016 at 9:19 am Julius Karash

    Here is a link to the McClatchy First Quarter financial report that was released this morning:
    http://www.talkingnewmedia.com/2016/04/20/mcclatchys-q1-earnings-report-finds-ad-revenues-still-falling-company-reports-12-7m-net-loss/


    • on April 20, 2016 at 9:36 am jimmycsays

      All you really need is the headline: Strong growth in digital cannot overcome continued print advertising losses, as well as a decline in audience revenue.


  5. on April 20, 2016 at 10:23 am Karen Brown

    Many thanks to you and Julius for being on top of this story and I’m sure you’ll both continue your coverage. Oh, how I wish I could sneak into that Thursday morning meeting! (Of course, I know I couldn’t keep my mouth shut the entire time!) And what a great point Brian raises — why hold the meeting off-site? Curiouser and curiouser.


    • on April 20, 2016 at 11:09 am jimmycsays

      My thought precisely, Karen, on sneaking into the meeting. Let’s go down there tonight and and prop a back door open and check out service-elevator access. Are you game for the gambit?


  6. on April 20, 2016 at 10:35 am Laura Hockaday

    Jim:
    I certainly agree with Karen. As Brian brought up, why go outside the building for a meeting and disrupt everybody, working on deadlines? But maybe there aren’t deadlines any more.
    It sounds very strange and scary.
    Laura


    • on April 20, 2016 at 11:10 am jimmycsays

      Maybe it’s all part of Tony Berg’s plan to raise The Star’s profile. If so, good for him!


  7. on April 20, 2016 at 11:30 am John Altevogt

    This is the same trajectory the Kansas City Kansan was on. First the layoffs, then the sale of the building, then the downsizing of the staff to fit into the new smaller office, then the decision to do digital only and then the end.


  8. on April 20, 2016 at 11:48 am Inky

    Another good one from JimmyC……and congratulations to JKarash!!!!!


  9. on April 20, 2016 at 11:54 am jimmycsays

    Julius and I have been exchanging emails this morning, and in his latest he speculated that Tony Berg might be announcing that The Star will be leasing space at Union Station for some or all of the remaining employees.

    …That strikes me as very plausible. The Chamber of Commerce and the Board of Election Commissioners are located there, and wouldn’t it be great if an institution like The Star, with a big public profile, planted stakes in the most iconic public building in town?


  10. on April 20, 2016 at 1:09 pm Gene Meyer

    Or they’re going to put out what’s left of The Star on that old equipment we donated to Science City back in the day.


  11. on April 20, 2016 at 4:26 pm Keenan

    The first thing I was trained to do when digesting an earnings report is to skip over the commentary without making eye contact and start crunching Column A against Column B, paying particular attention to the presence of numbers that appear in parenthesis as they represent BAD news. There are nine such numbers in this quarter’s column; the same as last year’s, indicating the trend has not abated. No real shock.
    McClatchy made just under $20 million less in net revenues this quarter versus the same period last year. Which means they’re going backwards when it comes to earning money. Again, no gasp from the audience.
    Although they managed to trim by $14 million the cost of doing business, the company’s operating loss increased SIXFOLD compared to last year. That’s enough to justify using the verb “bleed” in the headline. Exsanguinate would be more accurate, but nobody’s going to use that in a headline.
    So, let’s turn to the commentary, which eerily reminds me of the “restated” Enron reports I had the displeasure of dissecting during my Bloomberg days. In McClatchy’s 1Q there is discussion of digital advertising, blah, blah, blah, blah, blah; the company’s digital strategy, blah, blah, blah, blah, blah; print continues to suck wind, blah; a great new digital consortium based on unique visitors that is a number that even God has been unable to attribute a dollar figure to, blah, blah, blah, blah, blah; and, oh yes, McClatchy has trimmed its debt to $906 million. Let’s go ahead and round that back up to 1 Billion. I mean really, that’s the kind of debt that makes you think these guys always bet on the Bills in the Super Bowl.
    Let’s say they sell all their real estate and have enough to pay off the billion. What happens next? Reinvest in providing public service journalism? Ha! Not a chance. It’s going to Class A shareholders and the McClatchy board–as did Knight Ridder’s–will vote to close the popsicle stand by selling off each of it’s brands.
    But hey, they won a Pulitzer for cartoons.
    I agree with Julius. The newsroom will move to Union Station, which makes me think the Chamber will announce a move as well. There won’t be any sale leaseback or triple-net lease on either property. The main building will be a flat sale and I expect a new hotel with a TIF attachment that will choke taxpayers. At best, the printing press will have to be a structured deal that provides a percentage of current and future printing profits to the buyer. The TIF extension, as I understand it, will roll over to the buyer. Within our lifetime the printing press building will be torn down to make way for offices/condos/megaplex theatres.


    • on April 21, 2016 at 6:56 am Will Notb

      Thanks for the news on the TIF extension, Keenan.

      The roll over tells me City Hall knew full well McClatchy’s plan and cynically extended the TIF in order to attract a buyer, aware the citizens would scream bloody murder should the city try to hand out yet another TIF in an area no way blighted.

      Yet another reason to despise this administration.


  12. on April 20, 2016 at 10:03 pm Mike Rice

    I remember a former colleague of ours stating that the new production facility could someday make for one helluva paintball facility.


  13. on April 21, 2016 at 3:54 pm jimmycsays

    Psssss. That’s the sound coming out of the balloon-ish expectations some of us harbored about today’s meeting at Union Station.

    One of the best bloodhounds in the business told Julius, who in turn told me, the meeting was a “morale-building exercise.”

    If that’s the case, I hope all those employees ran out of there whooping, hollering and wearing McClatchy pins. But I didn’t hear of any ruckus at Pershing and Main, so maybe “cautious optimism” was the order of the day.


  14. on April 21, 2016 at 4:28 pm Randy Covitz

    I remember Mac Tully holding a staff meeting at Union Station in the late 1990s when they awarded KC Star windbreakers to those who subscribed to the paper. When we asked about building our web site, we got a blank stare from the powers-to-be, who acted like this Internet fad would soon pass.


    • on April 21, 2016 at 4:55 pm jimmycsays

      I don’t remember that, Randy, but that was about the time many of us thought the Internet was some strange encroachment that would pass by with little disruption to “the way we do things.”

      Welcome to the Comments Dept.!


  15. on April 21, 2016 at 4:32 pm Julius Karash

    I salute the stalwarts at The Kansas City Star who continue to fight the good fight.


    • on April 21, 2016 at 4:57 pm jimmycsays

      I agree…and that’s what our former loved and loathed colleague Randy Smith has told me every time I have referenced The Star in his presence.


  16. on April 21, 2016 at 5:17 pm Julius Karash

    Well Fitz, I have let go and moved on, with the help and support of my wonderful family, and great friends such as yourself. I wish Randy Smith all the best. After all, he was the guy who hired me to come to work for The Kansas City Times in 1987.



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