California Apparel News

Rock & Republic, the Los Angeles premium-denim house in financial hot water, faces an important court date next month to ease its climb out of bankruptcy.

One of its largest unsecured creditors is trying to get the apparel maker to pay millions of dollars in back rent and interest on an expensive Rodeo Drive store in Beverly Hills that Rock & Republic never occupied but was costing $7,000 a day. The resolution of the matter would make it easier to find a potential investor or buyer for the company.

The case, scheduled for Oct. 26 in U.S. Bankruptcy Court in New York, comes with a twist. Originally, the store at 319 N. Rodeo Drive was leased in September 2007 by Manny Mashouf, founder of the contemporary clothing store chain Bebe Stores Inc.

Three months later, Mashouf turned around and sublet the space to Rock & Republic for approximately $2.4 million a year for 10 years, court documents show.

The tony Beverly Hills shopping street seemed like a good bet for Rock & Republic, which had been selling to upscale stores such as Saks Fifth Avenue and Bloomingdale’s and recorded nearly $100 million in sales last year.

The store’s landlord, New Pacific Rodeo, was fine with the sublease and even did some work on the space for the blue-jeans company, which took delivery on Oct. 20, 2008. But Rock & Republic never opened in the 4,752-square-foot emporium, located in one of the world’s premier retail locations.

When Rock & Republic filed for Chapter 11 bankruptcy protection on April 1, it attempted to break some of its store leases, which retailers often successfully do in bankruptcy court.

However, New Pacific Rodeo and its president, David Margulies, were having none of this. New Pacific filed a claim and requested a hearing in bankruptcy court in an attempt to recuperate some of its money.

Margulies and New Pacific Realty Corp., parent company of New Pacific Rodeo, are a major real estate force in Beverly Hills. They are best known for owning 7.95 acres next to the Beverly Hilton hotel, where a large Robinsons-May department store was shuttered after Macy’s acquired May Co. in 2005. New Pacific’s plan for the land was a high-end condominium project. But the property was sold for $500 million in 2007 after New Pacific had acquired it three years earlier for $33.8 million. Legal drama

Even before the bankruptcy filing, New Pacific Rodeo was planning to take Mashouf and Rock & Republic to court. In March 2009, New Pacific filed a lawsuit in Los Angeles County Superior Court seeking back rent. But the local court couldn’t hear the case before the middle of next year, which wasn’t soon enough to settle the matter for the bankrupt Rock & Republic.

Meanwhile, Mashouf was dismissed from the case after he agreed in late July to pay $4.71 million to New Pacific Rodeo as a good-faith settlement, according to court documents.

For Mashouf, the entire sublease with Rock & Republic has been a bundle of problems. After subletting to the premium blue-jeans line, Mashouf was approached by Michael Ball, chief executive at Rock & Republic, about subsidizing the rent for him. Rock & Republic executives told Mashouf they had a potential subtenant but needed some help. “R&R [Rock & Republic] asked me to reduce rental payment under the terms of the sublease agreement. I explained that I assigned my rights to the landlord and could not modify the terms of the sublease agreement,” Mashouf said in court papers.

When Rock & Republic hadn’t paid the rent in more than seven months, Mashouf set up a meeting with Ball in early May 2009 to resolve the issue. Ball canceled at the last minute.

An obviously peeved Mashouf fired off an e-mail to the chief executive. “I just learned that you canceled our meeting that was scheduled today at 5:30 with our attorneys to reach a decision on what you are planning to do with the Rodeo lease.

“Needless to say, I am very disappointed that you have not recognized the urgency and assigned a priority to address these issues, including your not paying rent to the landlord, of which, as a result, I have been sued by the landlord. Just as a reminder, the rent you have agreed to is approximately $200,000 a month, or approximately $7,000 per day.

“Please give this matter the urgency it deserves. It would not be in anyone’s interest to get into a legal battle with the landlord.”New York store

Just as it is preparing to go to court over its Rodeo Drive property, Rock & Republic has reached a tentative settlement over its store in Manhattan. The property, located at 102 Greene St. in SoHo, was renting for $450,000 a year in a 10-year lease dated Sept. 24, 2007. Rock & Republic had been scheduled to move there in November 2008 but never occupied the premises.

Even before the bankruptcy took place, the New York landlord, 102 Greene Street Realty, started legal proceedings in New York courts. The landlord was looking to collect unpaid rent and damages it said Rock & Republic owed, court documents show. But that court case was stayed by the bankruptcy court when Rock & Republic filed for Chapter 11 protection.

Now, a hearing to approve a settlement with 102 Greene Street Realty is scheduled in bankruptcy court on Oct. 6. Originally, Greene Street filed a claim for $5.2 million, but with claim limitations set by bankruptcy proceedings, it was reduced to $530,000.

The proposed settlement calls for 102 Greene Street to receive $291,000 and keep its $112,500 security deposit.

Meanwhile, Rock & Republic has been searching for a strategic partner or financial angel to help it emerge from bankruptcy. According to financial advisers close to the blue-jeans company, Iconix Brand Group in New York—with a stable of labels that include Mossimo, Op, Joe Boxer, Rampage, Mudd, Badgley Mischka and London Fog—had been talking about acquiring the label and then licensing it back to Michael Ball. But nothing ever became of that.

Bluestar Brands—a New York company that has acquired apparel brands such as Hot Kiss, Liz Lange Maternity and Pierre Cardin—also had been considering a deal.