Furniture Failure Adds to Virginia Commercial Foreclosures

The closure of the Gallahan’s furniture store which became the largest in Spotsylvania County, Virginia in 2001 and even attracted buyers from the Washington, D.C. area has added another property to the area’s commercial foreclosures.

The 81,870-square-foot retail and office space which previously housed Gallahan’s Furniture will be auctioned off this August for Wachovia Bank which foreclosed on the property after owner Stone-Lee Partners LLC failed to pay the money it loaned to buy the building in June 1995.

The foreclosure of the retail building illustrates the situation of commercial real estate properties across the U.S. whose mortgages are not getting paid because of high vacancy rates, low rents, declining property values and difficulties in obtaining financing.

The failure of Gallahan’s Furniture also illustrates the difficulties faced by the furniture industry when home sales declined abruptly and fewer homeowners bought furniture. The rise in job losses worsened the picture as households shelved their home improvement plans.

Gallahan’s Furniture was founded in 1970 by Franklin Gallahan and went bankrupt in 1994. It was bought by Phil Kenneth of Stone-Lee in June 1995. About 3 years ago, Severegn Furniture Management acquired the business from Stone-Lee. It closed last year and Severegn failed to attract any new tenant.

Jim Shrawder, part owner of Severegn Furniture, said Gallahan’s could not reach his firm’s performance requirements despite efforts to cut costs and increase sales. Severegn held a large liquidation sale last year as it closed the Gallahan’s business.

The building became the target of some buyers, including the Spotsylvania Technology Center, but the center could not find a lender to provide a loan to buy the building, according to center director Bob Duffy.

Fitz Johnson, head of Johnson Realty Advisors in Fredericksburg, said the scheduled auction to be held by Walker Commercial Services for Wachovia Bank may not be able to sell the Gallahan’s property during the auction, but he is sure the auction will attract a good crowd because of the history of the furniture retail building.

According to real estate analysts in the area, commercial real estate foreclosures have not been as significant as residential foreclosures in Fredericksburg. But they are concerned about the impact of rising vacancy rates and declining rent levels on the commercial sector.

However, according to Phillip Baxter of Silver Companies, leasing activity has been rising in buildings and structures needed by the military and other federal agencies.

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