May 25, 2007 Friday
By MARLENE KENNEDY

We've seen this pattern before: An investment group squawks that shareholders are getting short shrift and demands a course of action that includes a board seat, sale of the company, or management's ouster.

In the past two years, it has led to the disappearance of Integrated Alarm Services Group Inc. of Albany, new blood at the parent of The Great Escape & Splashwater Kingdom in Queensbury and the possible sale of Friendly Ice Cream Corp. Now, the redevelopment of Colonie Center could be at stake.

That's a bit of over-dramatization, to be sure. But do we want to see jeopardized a spiffy, expanded mall and bragging rights to the likes of L.L. Bean, P.F. Chang's China Bistro, The Cheesecake Factory and Sephora?

Since December, Mercury Real Estate Advisors LLC of Greenwich, Conn., has sent four letters to Colonie Center's owner, Feldman Mall Properties Inc., outlining management shortcomings and concluding that the sale of the company "is in the best interest of stockholders and should be pursued immediately."

It wouldn't seem to be in the best interest of the Capital Region, however.

Feldman, a Long Island-based real estate investment trust, came quietly on the scene in late 2004. As part of a planned initial public offering of stock, it negotiated the purchase of Colonie Center and three other malls with an eye toward their redevelopment. Feldman now owns seven malls and has been investing in them to raise them to top-of-the-line standards.

For Colonie Center, which dates to 1966 and is one of the area's first enclosed malls, the strategy has resulted in a flurry of construction activity that will add a third floor for a 14-screen movie theater and a new facade along Wolf Road showing off unique-to-the-market stores and restaurants. Some $70 million in improvements have been planned in Colonie alone.

Along with the physical changes have come marquee tenants: upstate's first Cheesecake Factory in August (Buffalo's didn't open until December and Rochester's debuts this summer); upstate's second P.F. Chang's, due in October (the first, in a mall outside Rochester, opened in late 2003); New York's first L.L. Bean store, due in mid-September; and the market's first Sephora, a cosmetics phenom readily identified with urban chic. Expected by the end of the year, Sephora is the exclamation point that pronounces us cool.

It's that kind of momentum you don't want to lose. But Mercury Real Estate Advisors doesn't understand the market excitement at watching the construction or getting the coveted first-tier retailers; its only interest is maximizing a $14 million investment in Feldman.

That has a place, of course. But can't Mercury be more patient?

The first Securities and Exchange Commission filing on its investment appeared in June 2005, when its stake in Feldman was 5.4 percent. (SEC regulations require disclosure of stock holdings when they reach 5 percent.) By February 2006, Mercury was up to 9.8 percent, making it one of Feldman's largest investors.

Then the noise started: " ... retain an investment banker and begin a sale process," Mercury said in a letter to Feldman officials in December. A month later, it reiterated that demand and offered to pass along the names of "well-known and established national and regional mall owners" that had inquired about its sale proposal.

In March, Mercury made the same sale demand and detailed Feldman's late SEC filings and rescheduled earnings conference calls, which it said "exhibit a lack of leadership and governance." Last week, it sent another letter making the same points and singled out for blame members of the board of directors who sit on the Audit Committee. "Enough is enough!" the letter said, asking for a board meeting "to discuss this dire situation."

The escalating rhetoric is nothing new. We saw it when Red Zone LLC took a stake in Six Flags Inc. and eventually booted the theme park operator's management. Executive heads also rolled at Integrated Alarm Services Group when investor Contrarian Capital Management LLC raised a stink, and now the alarm-monitoring company goes by the name Protection One Inc. and is headquartered in Kansas.

And the Massachusetts company that operates Friendly's restaurants in the Northeast may be headed down the same path: It has retained legal and financial advisers to explore "a wide range of options" - including a sale - following a push by a large shareholder, The Lion Fund L.P.

Selfishly, I want Feldman to get a chance to follow through on its Class A vision for Colonie Center before it has to confront Mercury. I like knowing we can match top metros on shopping opportunities. And I keep hoping I'll hear that Feldman has landed Crate & Barrel or Neiman Marcus or any of a number of other sought-after names for this market.

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