The 11-unit Virgin Megastore operation in North America is being acquired by real estate development and management firm, New York-based Related Companies, in a deal that also involves Vornado Realty Trust.

As part of the agreement the Virgin Entertainment Group North America (VEGNA) management team will stay in place, including Simon Wright, who is resigning as CEO of the Virgin Entertainment Group worldwide operations. Also, the deal includes a 20-year license for the use of the Virgin Megastore brand.

The deal is expected to close in September, although terms of the deal have not been disclosed. The official press release announcing the deal does not mention Vornado, although the New York Post reports that sources said "Related will own 51 percent to Vornado's 49 percent - yet Vornado put up more than 50 percent of the equity for the purchase," which a Vornado spokeswoman confirmed. But other sources say Vornado's involvement is more related to financing than ownership involvement.

Billboard estimates that Related is paying $30 million to acquire VEGNA and assuming another $30 million in debt. Related, which has $16 billion in real estate assets with another $10 billion under development, is the asset manager for the building that houses Virgin's 14th Street store. Meanwhile, Vornado last year paid $260 million to acquire the retail space on the bottom of the Bertelsmann Building in Times Square. That location is Virgin Megastore top performing store, generating $50 million a year in annual business.

Wright says the deal will give VEGNA an owner that can leverage its real estate expertise to help management improve the chain's business. "This deal is in the best interest of our chain and our suppliers," Wright says. "With this deal the Virgin balance sheet is improved. Without this deal, there would have been a question mark over the chain."

Indeed, label financial executives say with the demise of Tower, the next worry had been VEGNA, but they have been heartened by the chain's turnaround in the last year. The chain re-merchandised its inventory to become a lifestyle entertainment store, with a scaled back music selection.

While the remerchandising efforts have been successful in existing stores, Wright says the company is ready to test a smaller store model, one that will measure between 10,000 square feet and 20,000 square feet. Both New York stores are over 30,000 square feet.

"We want to go into high quality real estate spaces but we need to bring down our size in order to get an economic model that works," in those types
of properties, Wright says.

Other sources suggest that Related and Vornado are the perfect partners to help the chain find real estate for new stores. Both have diverse portfolios that include retail.