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Most companies mean to stay in business for the long term, and those in the industries most exposed to the business cycle know that low debt and no rent are the keys to surviving hard times and then prospering when the good times return. The motivation is very different for private-equity owners, who operate under a shorter time frame, often just three to five years, before moving on. For them, low levels of debt and high levels of real-estate ownership present a get-rich-quick opportunity.

The low debt means that private-equity firms can acquire retail chains by putting up very little of their own money and can take on high levels of debt that the company, not the investors who own it, must ultimately repay. The real estate gives investors an opportunity to sell off some of it and pocket the proceeds, leaving the stores to pay rent on properties they once owned. Especially attractive to private-equity owners is the high cash flow in retail operations. Private-equity owners have not been shy about putting their hands in the till to pay themselves exorbitant dividends.

Unfortunately, private-equity owners are far more accustomed to taking money out of retailers than to putting money into them, and the hollowed-out chains they own are ill-equipped to meet today’s competitive challenges. Brick-and-mortar stores need to invest in e-commerce, same-day delivery, and the technologies and logistics that success in retail now requires. While all traditional retail faces these challenges, chains owned by private equity make up a disproportionate share of businesses that have failed. This record is not just a product of markets; it’s a matter of morality as well. Private-equity firms profit as the companies they own tumble into bankruptcy.

Fairway’s problems began in 2007, when one of the market’s founders decided to retire and sell his interest. The company caught the eye of Sterling Investment Partners, which acquired a majority stake in the grocer for $137 million. Sterling agreed to put up $50 million in equity for the purchase while turning to CapitalSource—a lender co-founded by John Delaney, who later went on to mount an abortive bid for the 2020 Democratic presidential nomination—for $87 million in debt financing. While large, well-known private-equity firms such as the Blackstone Group, KKR, and the Carlyle Group generally focus on relatively large acquisition targets, Sterling is one of hundreds of lesser-known private-equity firms that buy smaller or family-owned companies. In addition to the initial debt, the company may take on additional debt to expand the company. As described in Fairway’s 2016 bankruptcy filing, Sterling kept borrowing money on the grocery chain’s behalf from 2009 to 2012.

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