Two newspapers on the block, about as far away from each as they can be.
One in San Diego, the Union-Tribune, finally sold after nine months on the market. The other, or really others, Blethen Maine Newspapers, still sits on the market after a year, but is being pitched to all kinds of would-be buyers.
One a metro, the other a small chain of city dailies.
What do they have in common: valuable real estate.
Many newspaper companies have written down or mainly off their "goodwill" (Goodwill Hunting, Feb. 4, 2009) this year. Goodwill, that intangible connoting value beyond the actual revenues of a business, has been all but destroyed as the going-forward financial value of daily newspapers is in deep question.
Will a paper be profitable this year? Our best guess is that the daily industry in the US will finish the year in the black -- buoyed by better-than-metro performances at smaller dailies -- at maybe 5-10% profit margin. The best guess for how profitable the industry is in 2012? Well, we can say that the betting market isn't taking that bet. Sales of newspaper properties have come to a standstill. Surely, the credit freeze is a part of that, but the problem that dare not speaks its name: going-forward valuation.
So if revenues are uncertain, if that goodwill is gone, what's left?
Real estate. Like the old saying, that they're not making anymore.
So in San Diego, those closest to the sale estimate that Platinum Equity paid somewhere between $15 and $50 million for a venture that was once worth more than a half billion dollars.
The reason, summed up in here in Rob Davis' Voice of San Diego piece:
"Gary London, a local real estate analyst, valued Copley's two key
properties at a combined $105 million and said they were likely "a
major percentage of the transaction." London estimated the Mission
Valley land's value at $100 million, calling it a "trophy property."
With that land, you could do "anything you want," London said. "It's just a terrifically well-located piece of property. It has tons of alternative uses. You could tear it down and build something else, there's a range of uses you'd look at."
In Maine, the sale has been teed up at small price of $30 million+, that price about half what was suggested as its sales price just last year.
The reason: "Between two-thirds and 100 percent of the purchase price reflects the value of real estate," according to a good in-depth story by Tux Turkel and Matt Wickenheiser of the Portland Press Herald, ironically one of the papers to be involved in the sale.
Hard as it may be to believe, we may have entered a new rocky period for newspaper companies. It would be a period in which the real estate on which they sit determines their market value. Consequently, their real estate value may determine who wants to sell the newspaper property and who wants to buy it -- to get at the real estate.
What happens with the newspaper itself? Its fate could be one of collateral damage. It could be the residue of the transaction, to be run or sold off, after the real value -- real estate -- is harvested.
Let's think beyond Maine and San Diego. Let's think about the Tribune. Who bought it? Real estate genius Sam Zell. He knew about the underlying value of those newspapers, the ground that lies under the newspaper buildings, and of course some of the buildings -- Tribune Tower, for instance -- themselves. He knew if times got tougher, he'd have those assets.
What's happened with the Tribune, and across the country, though, is an accident of timing. The newspaper industry's decline continued apace, from good economic times to bad, deepening of course with the economy. The financial meltdown, the accompanying credit freeze and then the deep recession unexpectedly froze up the commercial real estate market. The easiest deals came undone. Valuations have come into immediate question, and even when buyers and sellers could agree on price, financing's been scarce.
So, on Feb. 25, after fruitlessly seeking buyers, Sam Zell has had to put his plans to auction off Tribune real estate on hold. In that announcement, Tribune cited plans to sell the Tower and the L.A. Times complex, but the same is true for less high-profile real estate in other Tribune cities.
In Miami, Gary Pruitt's McClatchy has had a devil of a time selling not just the Herald, but 10 acres of land near the Herald. The $190 million price has been agreed, but financing has repeatedly fallen through, and the parties agreed in January to push out the deal six months in hopes credit markets will comply.
Those are two of the most public newspaper real estate stories we hear, but the situation is true across the country. If you try to value a newspaper company, you get quickly to its real estate -- and that real estate may be a third, a half or two-thirds of market value of a newspaper company.
The endgames here are uncertain. McClatchy, for instance, would love to use the $190 million to escape bankruptcy, meeting both operating costs and paying down debt. That would buy the company time, as it hopes for a silver lining of recovery and a revival of car, home and jobs markets.
The Blethens would like to use whatever proceeds they take out of Maine to plow into the Seattle Times, the only surviving metro daily in the market, as the PI has flipped the switch. Like Gary Pruitt, now the Blethens' silent partner in Seattle (thank you, Knight Ridder!), Frank Blethen hopes to use the money to buy time.
Other endgames lead us down the path to unknown owners like Platinum Equity. These apparently are not eager owners of newspaper -- or even news -- companies, but real estate buyers, who will then turn to the question of what to do with their orphan properties.
Who knows where that will lead?
Maybe they'll donate them to community foundations, and the Knight Foundation, taking a lead, will pick up the pieces, rent offices and get on with the rebuilding.
Maybe some real-estate-based pricing will find unlikely bedfellows like private equity and the Newspaper Guild "saving" a paper, as is envisioned in Maine.
Maybe, the papers will see substantial downsizing, the dayscrapping of taking a seven-day daily (seems bizarre to have to define that) down to four days or coming up with various hybrid tweaks of online-first, some print.
Maybe, it's best for news reporters to work out of cheaper quarters distributed over hither and yon, to be closer to the communities they cover.
Maybe Dean Singleton will end up running a holding company that operates all newspapers, "clustered" for digital manufacturing somewhere in the middle of low-cost, union-free Kansas.
We could use a newspaper real estate scorecard, locating all daily newspaper-owned real estate, pulling the values from public records and Google mapping it. Isn't that something that Adrian Holovaty's Everyblock could do a great job on?
What is certain is that the real estate gambit further accelerates the changing of the daily newspaper industry as we know it. After all, there will be a recovery -- including a relaxing of credit and a re-valuing of commercial real estate. That recovery will come before newspaper companies find a formula that stabilizes them.
In many cities -- of course depending on the location and value of the real estate -- that means newspaper real estate first, news publishing second. It's a world that is out of order, literally, but it's one we're inheriting.