Pace University has bought Lower Manhattan property it leased for a dormitory for just under $42.1 million, according to property records.
Building owner SL Green Realty and retail investor Jeff Sutton developed the dorm for Pace at 180 Broadway.
After about two years of construction, roughly 600 Pace students moved into the 24-story mixed-use student housing project last Labor Day weekend, DNAinfo reported.
The sale closed on Feb. 27 and was recorded with the city today.
A spokesman for SL Green said the company declined to comment. Pace wasn't available for comment by publication time. Jacob Bart of Stroock & Stroock & Lavan, who represented Pace in the deal, declined to comment.
Come April 1, Pace is expanding its William Street education and office campus, bringing its footprint to more than 170,000 square feet over 19 floors, as Commercial Observer previously reported.
A joint venture led by Jeff Sutton's Wharton Properties has nabbed a three-building site at 530 Broadway from Joseph Sitt's Thor Equities for $326 million. The sale closed on March 6 and appeared in public records today.
The retail mogul bought the 11-story property to extend his dominance in Soho. It hit the market in February 2013 and Mr. Sitt agreed to sell it to the new owners that September.
Meridian Capital Group arranged $200 million in acquisition financing from Morgan Stanley for the office and retail property. The New York-based mortgage brokerage firm secured the financing on behalf of the joint venture, which includes SL Green Realty Corp.
The three-year financing features a “competitive Libor-based spread” and two, one-year extension options, a Meridian spokesperson said without naming the lender.
The 40,000-square foot property, located at the corner of Spring Street, is made up of three interconnected buildings. Eastern Mountain Sports occupies the ground-level retail space.
The three buildings sit across the street from 529 Broadway where another partnership consisting of Wharton Properties, Aurora Capital Associates and Thor Equities is constructing a 34,000-square-foot retail building.
Meridian’s Ronnie Levine and Tal Savariego negotiated the acquisition financing.
“530 Broadway not only has an irreplaceable location but its sponsorship is uniquely positioned to execute a value-add strategy over time and capture additional upside from the asset,” Mr. Savariego said.
Eastdil Secured's Douglas Harmon and Adam Spies marketed the property. Messrs. Harmon and Spies weren't immediately reachable for comment, and nor was Mr. Sitt.
Update: This story was edited to include financing information.
SL Green Realty Corp. has agreed to sell three of its Manhattan assets, the real estate investment trust announced today. The deals, for 2 Herald Square, 180 Broadway and 985-987 Third Avenue, will generate net cash proceeds of $240 million, according to a press release.
The REIT will sell the leased fee interest in 2 Herald Square for $365 million. SL Green acquired the interest in joint partnership in 2007 before consolidating its position in 2010, the landlord said.
180 Broadway. (PropertyShark)
The company, in partnership with Jeff Sutton, has also agreed to sell its entire interest--the fee position and retail condominium unit--in the mixed-use property at 180 Broadway for $222.5 million. The 24-story building boasts three floors of retail space and dormitory units for Pace University.
Lastly, SL Green closed on the sale of its development properties at 985-987 Third Avenue for $68.7 million. The site was sold in conjunction with an adjacent parcel, which SL Green did not own, for a combined $100 million.
“While the strategic approach for each of these investments varied, we had one goal in mind: creating shareholder value,” said Andrew Mathias, the president of SL Green, in a prepared statement. “I am very pleased to say that with each of these transactions, we’ve successfully demonstrated our ability to identify, create, and harvest significant value. Our combined IRR across these three deals is in excess of 21%.”
SL Green did not disclose the buyers of the individual assets.
Steven Kohn of Cushman & Wakefield represented SL Green in the 2 Herald Square transaction. Adam Spies of Eastdil Secured represented the REIT in the 180 Broadway deal. Robert Knakal of Massey Knakal represented the sellers in the Third Avenue transaction.
Wharton Properties has obtained a construction loan from Natixis Real Estate Capital to develop a 33,000 square foot retail property along 125th Street, Harlem’s busiest commercial thoroughfare, Mortgage Observer has first learned.
A person with knowledge of the loan confirmed the amount as $95 million and added that it was a three-year, interest-only loan with two 12-month extension options. The interest rate, that person said, is roughly 300 to 399 basis points over one-month Libor. The loan closed on July 11.
Rendering of 100 West 125th Street.
The development site at 100 West 125th Street sits at the corner of Lenox Avenue. The project is slated to include Whole Foods Market as its anchor tenant, with additional space to be leased to American Eagle, Olive Garden, TD Bank and Burlington Coat Factory.
The retail leases will be for 20 years and the person familiar with the transaction said those spaces were 77 percent pre-leased as of Monday.
Another source, who asked not to be named, put the total retail square footage at “around 200,000,” which means there will be multiple floors of retail on the site. Records filed with the New York City Department of Buildings indicate the completed building will rise to six stories.
Construction on the retail property began earlier this year and is due for completion in 2015, as Commercial Observer previously reported.
Jeff Sutton of Wharton Properties declined to comment. Natixis did not return requests for comment.
A rendering of the new first four floors of 1560 Broadway. (Rosen Johnson Architects)
Three is better than one—in buildings as much as anything else. Landlords SL Green Realty Corp. and Jeff Sutton at 1552 Broadway and Newmark Holdings and the Benenson Family at 1560 Broadway tapped Rosen Johnson Architects to figure out a way to link their two buildings, and smush in a third in between the two (which was demolished). Rosen Johnson principals Paul Rosen and Anthony Johnson designed an innovative new scheme for the space with great retail potential just off Times Square.
The nearly completed digs also lend better traffic flow for the hundreds (or thousands) who audition for productions of all types in the offices of 1560 Broadway’s main tenant, Actors’ Equity, a labor union for actors and stage managers. The two building owners demolished an existing small building Newmark purchased between the two structures, combined the bottom three floors of the buildings into new retail space and implemented a new sky lobby on the fourth floor to serve as indoor waiting space for Actors’ Equity. The architects pulled off the stunning conversion even though the landlord partners from both buildings had some difficulty imagining how they would do so, said Brian Steinwurtzel, the principal of Newmark.
“We basically met, and together between their team and our team, we hatched out a plan to create value by bringing 1552 Broadway’s retail back to the building,” Mr. Steinwurtzel said. “We knew that Times Square retail would add a lot of value, but we didn’t know how to do it.”
The new entrance to 1560 Broadway. (Rosen Johnson Architects)
The clothing store Express already opened a three-story, 22,500-square-foot outlet on the Times Square side of 1552 Broadway in February. But workers are currently putting the finishing touches on three new roughly 15,000-square-foot floors of prime retail space, with the partners at 1560 leasing the space to SL Green and Mr. Sutton’s Wharton Properties. “There’s a large expanse of very valuable retail space created for big-box retailers,” Mr. Rosen said.
A new ground-floor entrance for 1560 Broadway, now east of its former location on West 46th Street, allows visitors to go up to the fourth floor through a marble-lined lobby with four new shuttle elevators. “One of the challenges was to make the lobby prominent and also accessible from [Avenue of the Americas] and Broadway,” Mr. Rosen said. “Brian’s charge to us was to create a prominent lobby, sky lobby and entrance that would be first class. The old lobby was somewhat less than that.”
Messrs. Rosen and Johnson showed off the 100-foot-long sky lobby at 1560 Broadway during a recent tour with Commercial Observer. The space with new public restrooms opened July 14, helping the visiting throngs who audition in the Actors’ Equity space that now gets service from direct dispatch elevators running to the top floors of the 17-story tower. The pair who started their firm about two decades ago expressed satisfaction with the results. “The sky lobby becomes a little city, a little village, doesn’t it?” Mr. Rosen said. “It’s an actors’ village.”
The new snack shop and coffee bar in the sky lobby of 1560 Broadway. (Tobias Salinger)
And one new feature of that village opened just last month. Massimo Felici of Gourmet to Go, who operates 15 coffee shops in commercial buildings around the city, opened doors to a 1,600-square-foot coffee and snack bar supplying the building’s tenants and visitors with the food and drink they need to get through the day without the hassle of a trip to Times Square and elbowing past other thespians on their way to work.
Last week, as we were conducting the final interviews for Power 100, we got on the phone with one of the city’s bigwigs to ask him what he had been up to over the last year. He used the opportunity to list every grievance he held against the names on last year’s Power 100—one by one.
The call lasted 45 minutes, approximately half an hour of it devoted to trashing last year’s rankings.
One name we put in the 20s was way too high for such a small-timer. Another was a terrific broker, but how powerful is a broker, really? One name couldn’t really be considered a great power broker in New York—New Jersey, maybe. And, dammit, why was our interviewee so frickin’ low?
In exasperation our friend finally barked, “I don’t know how you define power!”
Well, we replied, that’s the $64,000 question.
As we embarked on this year’s Power 100, the first thing we asked ourselves was what was the story of the last year?
Certainly, talking to any broker or property owner about the state of the market, you sense a certain hesitation that you didn’t get last year. The market is softening, they say. The crazy overheated hunger for $90 million condominium units is finally cooling. Cap rates are too low. The loss of 421a makes it impossible to build any new construction.
All fair arguments.
But despite all of this, one couldn’t help but notice a penchant for the big, crazy, smash-all-records deals.
The biggest of these deals was the $5.46 billion sale of Stuyvesant Town-Peter Cooper Village to the Blackstone Group and Ivanhoé Cambridge.
However, that was just two properties trading hands. Blackstone made another massive bet when it, and Wells Fargo, purchased General Electric’s commercial real estate loan portfolio for $23 billion.
Blackstone’s global head of real estate, Jonathan Gray, certainly hasn’t shrunk from a challenge. If anything, he has stepped up and set the tone. It was the reason we ranked him No. 1 this year.
Across the street from Hudson Yards in a building that Related Companies uses as office space is a countdown clock to its city-within-a-city. Every day this visionary project gets closer to reality. Stephen M. Ross, Jeff T. Blau and Bruce A. Beal, Jr. have certainly earned a No. 2 place on our list.
In a normal year, SL Green Realty Corp.’s purchase of 11 Madison Avenue for $2.29 billion from the Sapir Organization and CIM Group would have been the deal of the year. But we’re not sure if this was even the most significant thing SL Green has done. It’s also working on its big, visionary plan for One Vanderbilt, the 1.6-million-square-foot tower across from Grand Central Terminal. It seems only right that SL Green’s Marc Holliday and Andrew Mathias should get the No. 3 spot.
This year’s list is definitely somewhat skewed to the people who made big bets on a grand vision.
Sometimes we’re not sure how—or even if—the vision will be fully realized. Hopes rose last year when Bjarke Ingels unveiled his design for 2 World Trade Center, and Silverstein Properties announced that it had secured News Corp. and 21st Century Fox as an anchor tenant, only to be deflated when Rupert Murdoch announced that they were pulling out of the deal. But Silverstein Properties head Larry Silverstein is left with a pretty spectacular design. And he’s on the hunt for a golden tenant who can take several hundred thousand square feet of space.
Some names on this list have the power to build cities. Some have the power to persuade tenants to move to some unheralded corner of Gotham. A few have the power to shape municipal or state budgets. But they all share a grand vision of real estate and the city.
The top 10 of Power 100 is largely a game of reshuffling. The names Durst, Ross, Roth and Speyer trade places with each other based on who had the bigger deals that particular year, but they’re almost always worthy of one of the top spots.
Of course, it also feels good to have a newcomer crash the top of the list.
This year, we jumped not one but two entries to the top 10. In 2015, Ric Clark, the head of Brookfield Property Partners came agonizingly close landing the No. 11 spot. But, honestly, when you consider what Brookfield did in FiDi with Brookfield Place and what they’re doing on the Far West Side of Manhattan with the 7-milion-square-foot planned Manhattan West complex, 11 feels a little low. This year they’re officially in the top five.
Back in 2014, WeWork’s Adam Neumann and Miguel McKelvey weren’t on Power 100 at all. But after their shared workspace company was valued at $5 billion, we felt they deserved an extremely worthy 22nd place last year. It turns out, 22nd was way too low. (They got a more recent $16 billion valuation!) After popping leases like they were Tic Tacs and venturing into even new waters with WeLive, we feel they earned a spot on the top 10.
Of course, Messrs. Clark, Neumann and McKelvey made significant jumps this year, but they were not the largest leap. That honor would have to go to the head of the Real Estate Board of New York, John Banks, who went from No. 92 (he was new to REBNY last year, and all we had to go on was a little good will power) to No. 62 (with the exception of the 421a fiasco, REBNY had a good year).
Just below Mr. Banks are Mitchell Hochberg and David Lichtenstein of the Lightstone Group, who made a nearly as impressive jump from No. 90 to No. 63.
Some of the big jumps might have been a little harder to pull off because the power player in question was already pretty high to begin with. Ziel Feldman and Nir Meir of HFZ Capital Group were a respectable No. 43 last year; but given the ambitious project they have set for themselves on the High Line, it sounded like they deserved to be somewhere in the 20s. (No. 28, to be exact.)
Possibly the greatest player in the game of retail, Jeff Sutton, was No. 12 last year—which was a banner year for Mr. Sutton, having picked up the Crown Building for $1.78 billion with GGP. He’s now engaged in the difficult (and less glamorous) process of making sure he gets the right tenants in the space. We moved him up to No. 11. Hey, Mr. Sutton, you can’t say we didn’t move you up!
The developers may build the properties and the brokers may sell or lease them, but it’s the real estate attorneys that make sure the deals close—and on time.
In a year with a lot of eye-popping transactions, there were lawyers that had to do a lot of heavy lifting before their clients dotted their i’s and crossed their t’s.
As Robert Ivanhoe, a partner and the chair of the global real estate practice at Greenberg Traurig, put it, “The New York market, in particular, saw an extraordinary amount of deal activity, and our clients continued to place their trust in us to execute complex transactions within a compressed timeframe.”
Here are some of the biggest and baddest attorneys behind 2015’s most exciting transactions.
Marc Edelstein (Photo: Emily Assiran/Commercial Observer).
Mark Edelstein oversees a team of more than 80 attorneys and numerous other professionals and represents some of the world’s biggest lenders and developers across the globe. Over the past year he and his team worked on numerous, skyline-changing, high-profile matters in the New York City area on the lender and equity side.
His jobs have included representing Hines and Goldman Sachs in the $860 million construction financing of MoMA Tower at 53 West 53rd Street and Bank of New York Mellon and Wells Fargo in their $411.5 million construction loan for the Durst Organization’s Via 57 pyramid rental tower at 625 West 57th Street.
“I am fortunate to have worked on so many amazing projects this past year and to be able to preside over such a remarkable team of uber-talented and adaptable partners, associates, legal assistants and staff, who make my job so much easier,” Mr. Edelstein said.
Last November, Orlando, Fla.-based dinning chain operator Darden Restaurants completed its spinoff of more than 400 real estate and restaurant assets into the newly formed Four Corners Property Trust and tapped J.P. Morgan Chase to lead a $750 million financing for the entity. Mr. Edelstein was part of the legal team representing J.P. Morgan in the financing.
Chair of the Real Estate and Financial Services Department at Polsinelli as well as Managing Partner of the New York Office
Dan Flanigan.
As chair of Polsinelli’s 165-attorney real estate and financial services department, Dan Flanigan oversees projects all over the United States. Not only does he handle financing transactions but troubled deals as well.
Polsinelli’s New York based clients include Extell Development Company, Prime Finance, Feil Organization, Kamber Management, Colony Capital’s Net Leasing Group, Barclay’s, Natixis, Centennial Bank, People’s United Bank, Lance Capital, Benefit Street Partners, Cantor Commercial Real Estate, Ladder Capital, MC Five Mile and ACORE. Some of them are Mr. Flanigan’s clients, and they all fall under his oversight as chair.
Polsinelli partnered with law firm Stark, Amron & Liner in three deals for Kamber last year, one in which Kamber bought Tower 45 at 120 West 45th Street from SL Green Realty Corp. for $365 million, another transaction in which Kamber sold 20 West 33rd Street to the Carlyle Group for $111 million and a third that involved Kamber selling off the leasehold interest in 1407 Broadway to Shorenstein Properties. That $300-per-square-foot deal also included the Lightstone Group selling its sub-leasehold at the building to Shorenstein.
Kamber and Lightstone Group have sold their respective leasehold and sub-leasehold interests in the office building at 1407 Broadway in New York City for $330 million, or $300 per square foot, to Shorenstein Properties.
According to Chambers USA, Mr. Flanigan’s clients call him a “master strategist.” They say he’s “very practical.”
The Kansas City, Mo.-based law firm, which has a big business in the commercial mortgage-backed securities space, first made its jump into New York in 2003. It cemented its physical presence when this February it moved into new New York headquarters in 40,592 square feet spread across three entire floors at the top of L&L Holding Company’s 600 Third Avenue.
Marc Hurel (Photo: Celeste Sloman/for Commercial Observer).
Marc Hurel, formerly a partner at DLA Piper, has been at Stroock & Stroock & Lavan since May 2015. Since he began practicing law in 1984, Mr. Hurel has worked on a number of high-profile projects.
He has worked with The New York Times on and off since 1987, including the development, financing and leasing of the 1.7-million-square foot New York Times building near Times Square.
Last May he represented Verizon in the $650 million sale-leaseback of the company’s 1.4-million-square-foot Basking Ridge, N.J., operations center, the largest sale-leaseback ever completed in suburban New Jersey. According to Cushman & Wakefield, which worked on the deal, “the salve value represented one of the highest sales prices per square foot of any suburban sale-leaseback in the United States.”
He also worked on nearly 2 million square feet of leases at 11 Madison Avenue, representing the building owner in negotiations with Credit Suisse, Sony, Yelp and William Morris Endeavor.
Finally, he represented the Port Authority of New York & New Jersey in negotiations for about 1.5 million square feet of leases at 1 World Trade Center, including 1.2 million square feet for Condé Nast, 270,000 square feet for the U.S. General Services Administration and 32,278 square feet (after shrinking the space in September 2015 from 202,000 square feet) for China Center, a unit of China’s Vantone Holdings Co.
A Partner and Chair of the Global Real Estate Practice at Greenberg Traurig
Robert Ivanhoe (Photo: Sasha Maslov/for Commercial Observer
Robert Ivanhoe can take credit for helping shepherd through a number of complex and record-setting deals in 2015.
He was co-counsel representing Chinese insurer Anbang Insurance Group Co in the $1.95 billion acquisition of the Waldorf Astoria New York, among the highest price ever paid for any hotel.
Mr. Ivanhoe worked on behalf of General Growth Properties and Jeff Sutton in connection with the acquisition of the Crown Building located at 730 Fifth Avenue for $1.78 billion, which marked a new per-square-foot world record for an office building at $4,490. He also handled the joint venture between GGP and Mr. Sutton and new investors, Vladislav Doronin and Michael Shvo, who entered into a venture before the closing of the acquisition to jointly own and develop the property as a condominium with retail.
Mr. Ivanhoe was on Starwood Capital Group’s side in the $230 million sale of the newly constructed Baccarat Hotel to the Sunshine Group. It represented the highest price per room for a hotel sale in the United States.
SL Green Realty Group tapped Mr. Ivanhoe to represent the company in connection with an agreement to purchase 11 Madison Avenue for more than$2.25 billion, ranked the second-largest office building transaction ever.
And outside of New York, Mr. Ivanhoe represented New York-based investors in the $1.3 billion sale of the former Sears Tower in Chicago to Blackstone. The acquisition is reported to be the highest price ever paid for a U.S. office tower outside of New York.
Jay Neveloff has perfected the art of the complex sale, development or condominium deal.
Some of the recent transactions he has been involved in include the purchase of land underlying a leasehold cooperative at Trump Plaza (he represented the cooperative corporation), the foreclosure of a development by client Gamma Funding near Sutton Place (which is ongoing) and multiple acquisitions and joint ventures for New Valley, Westbrook Properties and Fortress Investment Group among other companies.
In the condominium arena, Mr. Neveloff has helped shape the 57th Street corridor. For 432 Park Avenue he represented developers CIM Group and Harry Macklowe in securing a development permit. For the Nordstrom Tower, he represented Extell Development Company in acquiring development rights and land-use approvals at 217 West 57th Street. He also worked on a number of complex conversion offerings for HFZ Capital Group, new construction offerings for the Naftali Group and a creative condominium structure at 711 West End Avenue (he advised the development team, a joint venture between SJP Properties and P2B Ventures). He also is representing Forest City Ratner and Greenland Group in connection with the condominium-ization of Pacific Park, formerly Atlantic Yards.
“The New York City real estate market continues to be extremely active for Kramer Levin, and the past few months suggest that more of the same is on tap,” Mr. Neveloff said. “While I predict that the quantity of deals may rise slightly in 2016, I think that recapitalizations and creative uses of space will be increasingly dominant themes throughout the market.”
Co-Chair of the Real Estate Department at Proskauer Rose
Ronald Sernau.
With more than 25 years of experience in real estate law, Ronald Sernau has been involved in visible transactions involving trophy properties.
At the beginning of 2015 he represented AvalonBay Communities, an equity real estate investment trust, in its purchase of the American Bible Society site at 1865 Broadway for $300 million. Plans call for turning the 12-story American Bible Society’s Columbus Circle headquarters into a 300,000-square-foot residential tower.
He also represented Hines in the sale of the 30-story 7 Bryant Park, where East 40th Street and Avenue of the Americas meet, to the Bank of China for a reported $600 million through a long-term leasehold.
At the end of 2014, Mr. Sernau represented Neiman Marcus in its 250,000-square-foot lease for a new flagship store in Hudson Yards (at 640 West 28th Street and slated to open in fall 2018) and represented Vornado Realty Trust in its redevelopment of 7 West 34th Street and its 470,000-square-foot lease to Amazon.
Chair Emeritus of the Real Estate Department at Paul Weiss
Steven Simkin (Photo: Kaitlyn Flannagan/for Commercial Observer).
Steven Simkin may be chair emeritus of the real estate department at Paul Weiss, but that doesn’t mean he’s not active in major development projects, acquisitions and financings.
He represented Rose Associates in several development projects Downtown and in Brooklyn, as well as SL Green Realty Corp. in a number of major refinancings. He is currently representing Kuafu Development Company in connection with its $1 billion development at 143-161 East 60th Street. He is working on the redevelopment and long-term ground lease on behalf of a major foreign investor for a site between 11th and 12th Avenues on West 29th Street which Douglaston Development is developing as well as the development of a 1.6-million-square-foot site in Hunters Point on behalf of the Holterbosch Family.
Mr. Simkin was also part of a team that represented Melohn Properties last year in a $197.5 million fee interest in the 1.2-million-square foot Downtown office tower 32 Old Slip. It was a part of a deal in which RXR Realty bought the property from Beacon Capital Partners for $675 million. As Commercial Observer previously reported, RXR then sold the land to a group of investors led by Brooklyn-based David Werner and did a 150-year leaseback arrangement with them.
But the one that he is proudest of, which won an ingenious deal award from the Real Estate Board of New York (honoring the brokers in the deal), was representing “Memorial Sloane Kettering in connection with a $1 billion development on East 74th Street,” Mr. Simkin said. “It involved acquiring the site from the [New York City Economic Development Corporation] and various related transactions with [the City of New York], which had to make available a site it owned on its Brookdale Campus so the [New York City Department of Sanitation] could relocate from its former site on 74th Street and also to enable MSK and CUNY to share the site for two separate major projects.”
Contemporary brand Superdry has signed a sublease to take over Esprit’s three-floor space on West 34th Street between Fifth Avenue and Avenue of the Americas for its New York flagship, Commercial Observer learned at the International Council of Shopping Centers’ RECon in Las Vegas. The store will open on July 15.
The deal at 21-25 West 34th Street is welcomed news for Esprit, which was saddled with the space after closing the store a couple of years ago.
“It’s a great brand for the street,” said CBRE’s Richard Hodos, who represented Esprit in the sublease with colleague Joseph Hudson.
The space is about 16,000 square feet, 6,500 square feet of it at grade, according to JLL’s Michael Hirschfeld, who represented Superdry, which combines vintage Americana and Japanese-inspired graphics with a British style. It will be far larger than any of its other locations and will have a full product line.
The deal is for seven years, he noted, declining to talk about rent. But a source with knowledge of the deal said the transaction was done at less than $3 million a year, about $2 million less than the original asking price, with a capital contribution.
“Esprit did subsidize the Superdry deal, but I can’t discuss specifics,” Mr. Hodos said.
Mr. Hirschfeld added: “Even though the sublandlord is taking a hit on the rent, it’s good for the street, it’s good for Esprit and it’s good for Superdry.”
Esprit opened at 21-25 West 34th Street in 2010 in space subleased from Apple after then-Apple Chief Executive Officer Steve Jobs famously visited the site and deemed the block unworthy of an Apple store, as the Observer previously reported. (The German-headquartered Esprit announced it was closing all of its stores in North America in early 2012.) The site is owned by Jeff Sutton.
The 34th Street site is the first store in the U.S. that is being opened by the company, rather than a licensee. “This is the first deal done by the company,” Mr. Hirschfeld confirmed. “The company is opportunistically looking at additional locations for future store openings.”
About 18 months ago, he said, Superdry bought out the licensee and assumed the 13 Superdry locations. In New York City, that includes one in Times Square, which will remain open, one on Lexington Avenue, which has a lease expiring this year, and one in Noho, which will be terminated, Mr. Hirschfeld said.
Superdry is “repositioning stores and right-sizing them,” Mr. Hirschfeld said.
Last night, the Onyx Room of One57’s Park Hyatt New York was packed with a who’s who of New York City real estate celebrating Commercial Observer’s Power 100 (the annual New York City ranking of real estate’s most influential people) and Power 50 (a national list of the top lenders and debt brokers in the real estate industry).
“It has been really special for me to bring a bit of me into Brooklyn where my mom and my family were raised,” Demby said in an acceptance speech. “We’ve built a community there of vendors and small businesses, helping them grow and giving them a platform to do so.”
Demby said the duo was headed to Los Angeles in advance of Sunday’s opening of Smorgasburg LA.
“The amazing thing that has happened in the last 10 years is the extent to which developers understand that sticking in the high-paying Duane Reade isn’t the answer and isn’t necessarily the way to maximize their return,” Butler added. “We’ve worked very closely with a number of these developers.”
“As part of our acquisition of the property, we reached a historic agreement with the City of New York to preserve the heritage of Stuyvesant Town and to ensure that it remains a bastion for middle-class housing in New York City for decades to come,” Meghji said.
Clothing and accessories retailer American Eagle Outfitters is planning to build a café that serves coffee and specialty juices in its store at 1551 Broadway between West 46th and West 47 Streets, Commercial Observer has learned.
Demolition is expected to start in the next couple of weeks so that the café can open in October, according to Tom Rectenwald, the chief executive officer of Tom Rectenwald Construction, the general contractor on the project.
He said the café experience at the Times Square American Eagle would be comparable to what his company built in Madison, Wis. for American Eagle where its Tailgate and Don’t Ask Whystores are connected via the Coffee Shop.
“We just opened it in May,” Rectenwald said. “I know that it’s real successful and they’re very pleased with it.”
American Eagle leases the entire three-story, 25,000-square-foot building at 1551 Broadway owned by Jeff Sutton’s Wharton Properties.
Steven Gambino of Gambino + LaPorta Architecture has been tapped to design the space, which is slated to cost between $1 million and $3 million to build, according to Dodge Data & Analytics.
Gambino didn’t immediately respond to a request for comment and nor did a spokeswoman for American Eagle.
UBS and Morgan Stanley have teamed up to provide $195.3 million in financing on Soho’s nearly completed, six-story retail development at 529 Broadway on the corner of Broadway and Spring Street, according to records filed with the city today.
Jeff Sutton’s Wharton Properties, along with other high-level real estate investors Bobby Cayre’s AuroraCapitalAssociates, A&H Acquisitions and Joseph Sitt’s Thor Equities, purchased the property in December 2012 for $146.9 million from the Goldstein family, city records indicate. At the time of the acquisition, Deutsche Bank provided a $100 million acquisition loan.
The new debt from UBS and Morgan Stanley refinances previous mortgages on the property, but the term and rate of the loan were not immediately clear.
There have been a range of plans for the development including a hotel, but now a new, 52,500-square-foot building stands on the site, replacing a two-story retail building that previously housed a Steven by Steve Madden shoe store.
Once completed, the development will reportedly be anchored by Nike, which Commercial Observer has reported would pay $16 million per year in rent.
In August 2015, Jared Epstein, a vice president and principal at Aurora Capital, told CO that “corner spaces due to their scarcity and dramatic wraparound frontage and foot traffic…command a significant premium over inline spaces, especially when they are located adjacent to a major subway entrance and that’s the case with Broadway and Spring and Broadway and Prince.” He did not comment on the Nike lease at the time.
Sutton and Epstein did not immediately respond to a request for comment, and nor did representatives for UBS and Morgan Stanley.
The longtime Eastdil Secured brokers are serving as chairmen of C&W’s capital markets division, according to the information. The pair effectively joined the firm today.
Kevin Donner, a managing director at Eastdil who had been with the firm since 2005, is also joining C&W in the move, the statement said. He will be an executive managing director.
“As the recognized leaders in the New York institutional capital markets business, we are pleased to welcome Doug, Adam, and Kevin to Cushman & Wakefield,” Brett White, C&W’s chairman and chief executive officer, said in prepared remarks.
Harmon, who joined Eastdil in 1993, oversaw the $5.45 billion sale of Stuyvesant Town-Peter Cooper Village sale to Blackstone Group and Ivanhoé Cambridge, which closed in December 2015.
He and Spies regularly worked together on some of the largest sales in New York, including the $1.78 billion sale of the Crown Building on Fifth Avenue to Jeff Sutton of Wharton Properties and Chicago-based General Growth Properties. The duo was among the highest-ranking brokers to make Commercial Observer’s 2016 Power 100 list, coming in at number 16 (10 spots ahead of a year earlier).
Nike has sealed a 15-year deal for a 69,214-square-foot store that spans seven floors at 650 Fifth Avenue near West 52nd Street (including the lower level), Commercial Observer has learned. The asking rent for the 7,000-square-foot ground floor was $4,000 per square foot, with a total starting rent of $34 million, a source with knowledge of the deal told CO. (Victoria’s Secret next door has 9,200 square feet at grade, with a starting rent of $31 million, the source noted.)
Through a 50-50 joint venture, SL Green Realty Corp. and Jeff Suttonacquired a 49-year leasehold for the existing 30,000-square-foot retail portion of the office tower at 650 Fifth Avenue in 2013, according to The Wall Street Journal. That space included the basement, first, second and third floors, and at one point was home to Juicy Couture. Now the venture has “added floors to the retail box to make it over 60,000 square feet,” the source said. In addition, it has bought Godiva at grade and Devon & Blakely in the lower level out of their leases at the location. This will give Nike 100 feet of frontage on Fifth Avenue.
It’s not clear if Nike is abandoning its Niketown space at Trump Tower at 6 East 57th Street at Fifth Avenue, but the company has been looking for space for a while. Indeed, it was working on a deal for FAO Schwarz’s former 53,000-square-foot flagship space at the General Motors Building at 767 Fifth Avenue, but “they took a little too long, and Under Armour took that space,” the source said. Meanwhile, Nike opened a 55,000-square-foot store at 529 Broadway at Spring Street in Soho on Nov. 18. Sutton and partners own the six-story retail building.
Joanne Podell of Cushman & Wakefield represented Nike in the 650 Fifth Avenue deal. She didn’t respond to a request for comment. Sutton and spokespeople for SL Green and Nike declined to comment.
Update: This story was edited to clarify the square footage and number of stories the Nike space will span.
A partnership led by Jeff Sutton’s WhartonProperties has nabbed a $60 million refinancing of a Times Square retail property wholly occupied by Duane Reade, sources told Commercial Observer.
Bank of China provided the mortgage, which carries a three-year term with a Libor-based floating rate currently at 3 percent, according to a source who spoke on the condition of anonymity. MeridianCapital Group’s CarolShelby negotiated the debt on behalf of the borrowers.
The pharmacy occupies the entirety of the 17,667-square-foot building at 661 Eighth Avenue at West 42nd Street, across the street from the Port Authority Bus Terminal. The drugstore chain’s lease expires in December 2021, Trepp data indicates.
The Bank of China debt is replacing a $60 million note that was securitized in the commercial mortgage-backed securities market, in the Wells Fargo-sponsored WBCMT 2007-C30, according to Trepp.The old loan was set to mature on Jan. 11, 2017 and carried an interest rate of roughly 5.9 percent, according to one of the sources.
The property is valued at more than $100 million because of Duane Reade’s increased rent and the air rights over the two-story building, which played a large role in the borrowers securing a lower interest rate on the loan, one of the sources said.
The property, which Wharton bought in a partnership that includes CrownAcquisitions and MidtownEquities, is immediately in front of the subway entrance to the Times Square station.
“Times Square is a prime location for retail because of its heavy pedestrian traffic and accessibility to Port Authority and numerous subway lines,” Shelby said. “Additionally, the available signage rights gives the property significant upside potential.”
A representative for Crown did not respond to a request for comment. Representatives for Wharton, Midtown Equities and Bank of China were unavailable for comment.
Multifamily residential developer Copperline Partners raised roughly $75 million through a bond offering on the Tel Aviv Stock Exchange this week—the second such deal completed by the New York- and Florida-based company on the Israeli bond market.
Copperline raised around 280 million shekel in total upon closing the issuance Thursday on TASE, which has emerged in recent years as an increasingly viable means by which U.S.-based real estate investors can raise capital.
The company—a private firm owned by the Schlesinger family that operates roughly 40 residential and hotel properties in New York, Connecticut and Florida—initially targeted an offering of around $25 million but raised roughly three times that amount due to high demand from Israeli institutional investors, according to sources with knowledge of the deal.
Copperline secured the bond issuance, backed by a portfolio of assets selected from its U.S. holdings, at an interest rate of 5.1 percent—indicative of the low-cost, corporate-grade debt space available to mid-sized American real estate players in Israel. The series is due to mature in 2025.
The firm will use part of the proceeds from the deal to help service the debt on its first Israeli bond offering in October 2015, in which Copperline raised more than $85 million at an interest rate of around 6 percent. The company’s bonds have performed well since, currently trading at yields just north of 3.2 percent and due to mature in 2020. Copperline was also able to successfully issue another $20 million of Series A debt last September—pushing that offering to roughly $105 million total.
Copperline did not return requests for comment. The company was advised on the deal by Tel Aviv-based financial consultancy InFin, which also served as the underwriter. InFin vice president Yossi Levi told Commercial Observer that Copperline’s performance on the Tel Aviv Stock Exchange and its Series B issuance “symbolizes that the market is getting more comfortable with U.S. issuers.”
“After the bond starts to trade, the market gets familiar with the company and it enables them to issue at a more attractive interest rate,” Levi said. “There’s still a gap [with the interest rates secured by Israeli issuers], but it is getting minimized day by day.”
Retail mogul Jeff Sutton was able to successfully raise $233 million on the Israeli bond market this week through an institutional tender to Israeli banks, mutual funds and institutional investors, as The Real Deal reported. The institutional tender comprises the first phase of a TASE bond offering; Sutton can raise up to an additional $30 million through a second, public tender open to a wider array of investors.
J.P. Morgan Chase and Morgan Stanleyoriginated $125 million in financing on the six-story retail structure at 100 West 125th Street, which sits on the corner of Malcom X Boulevard. The transaction is comprised of a first mortgage and a mezzanine loan, but the amount of each note was not immediately clear, nor was the breakdown of debt that each bank took on its balance sheet.
Meridian Capital Group’s Aaron Birnbaum and Tal Savariego brokered the deal, which carries a five-year term with interest-only payments for the full life of the debt. The transaction closed on Friday.
The new debt package replaces an aggregate of $102 million in financing that Natixis Real Estate Capital provided for the construction of the 200,000-square-foot building over the last two-and-a-half years, property records indicate. CO broke news of the first development loan that Natixis originated on the site, which was a $95 million three-year, interest-only mortgage.
“The new financing provides efficient interest-only payments at a favorable rate and gives the borrower the flexibility to continue its operation of the asset and retire the construction loan,” Birnbaum said through a spokesman.
While the long-awaited Whole Foods is slated to open this summer, the site is already home to American Eagle, Burlington Coat Factory, Raymour & Flanigan and TD Bank are currently open. OliveGarden also has an outpost in the building. The lenders were able to get comfortable with the property because of its “great tenancy” and location on “one of the best corners in Harlem,” according to one of the sources, who spoke on the condition of anonymity.
Representatives for Morgan Stanley and Wharton Properties were not immediately available for comment, while a representative for J.P. Morgan did not immediately respond to a request for comment.
On a sunny April afternoon, 125th Street is a study in contrasts. Starting on the East Side near the Triborough Bridge, aging industrial buildings and a shuttered Pathmark give way to a bustling shopping district. Shoppers heading into H&M and Old Navy rub shoulders with panhandlers and street vendors, and a soon-to-open Whole Foods dominates the corner of Malcolm X Boulevard. The blocks west of Morningside Avenue are sleepier and more residential, until the elevated subway tracks along Broadway, where Columbia University’s gleaming new Manhattanville campus has suddenly sprouted.
While the strip has long been a busy commercial thoroughfare, the current wave of change was sparked by a 2008 rezoning that allows buildings as tall as 30 stories to grow on some blocks, something not everybody is happy with.
“The rezoning was a fraudulent and fraught process,” said Michael Henry Adams, a writer and historian who has lived in Harlem for 30 years and vocally opposed the rezoning at the time. “The lack of height limit and implementation of [low] floor area ratio kept the height limit to six stories. Now the new height limit is 20 stories if you have a cultural facility on the lower floor. There are going to be all these facilities like a black Harlem heritage Disneyland. But where will the black people be? Gone.”
The historic former Victoria Theater at 233 West 125th Street between Frederick Douglass and Adam Clayton Powell Boulevards—which is becoming a 26-story hotel, rental and retail complex with space for local nonprofits—and the new Studio Museum building at 144 West 125th Street between Adam Clayton Powell Jr. and Malcolm X Boulevards will both benefit from the community facility bonus to which Adams is referring.
Few residential developers have taken advantage of the zoning so far. But two sites on the East Side of 125th Street—Durst Organization’s 1800 Park Avenue and Extell Development Company’s 142-196 East 125th Street, a now-shuttered Pathmark grocery store at the corner of Lexington Avenue—will likely sprout some large residential developments. Neither builder revealed its plans, except to say that it was in the planning stages.
Alexander Durst, Durst Organization’s chief development officer, said its project will be a mixed-use rental building. The building at 1800 Park will take advantage of the newly resurrected 421a tax exemption, which means at least a quarter of the apartments will rent for below-market rates.
The Mallization of 125th Street
But residential development isn’t the star attraction along 125th Street. National retailers and hotels are already transforming the face of the historic strip. Over the course of the last decade, Red Lobster, Banana Republic, Marshall’s, TJ Maxx, and AMC Magic Johnson Theaters have all opened up, and there are more major chains on the way.
“It’s a very well-targeted mallization of 125th Street,” said Faith Hope Consolo, who chairs Douglas Elliman’s retail leasing and sales division and has been brokering deals in Harlem for a decade. “125th Street is going to look like 34th Street next year.” Sephora and Macy’s have come close to inking leases on 125th Street in the past year, she added, noting that asking rents of $150 to $200 a square foot seem like a bargain compared to rents for prime retail space in most parts of Manhattan.
Moving from east to west, the game-changers under construction include a bevy of retail, hotel and residential options: 5-15 West 125th Street between Fifth Avenue and Malcolm X Boulevard, which includes retail and a WeWork; 100 West 125th Street at the corner of Malcolm X Boulevard, which will have a Whole Foods opening this summer; 233 West 125th Street between Adam Clayton Powell Jr. and Frederick Douglass Boulevards, a 200-key Marriott, rental and retail space and 324 West 125th Street at the corner of St Nicholas Avenue, another retail hub. (See list at the end of the story.)
Of course, not everyone thinks the narrative should be about national chains moving into the neighborhood. “If it was just about the big boxes coming in, we would fail, because Times Square has that too, and we can’t compete with that,” said Barbara Askins, the president of the 125th Street BID. “We have to focus on the uniqueness, the music, the art, the fashions.”
A Burgeoning Office Market and Columbia’s Controversial New Campus
Plenty of ink has been spilled about 125th Street’s rising rents and fancy new stores and restaurants. But less attention has been paid to the hundreds of thousands of square feet of office and community space under construction at its western end, in an industrial zone that stretches from Amsterdam Avenue to the Hudson River.
At the corner of Broadway, next to the elevated subway train tracks, Columbia University is getting ready to open the first phase of its 17-acre, $6.3 billion Manhattanville campus. Four blocks of factories and warehouses have given way to a massive construction site, part of which was purchased through a controversial eminent domain process. Two boxy glass buildings designed by Renzo Piano have sprouted next to the 125th Street 1 train station.
The 450,000-square-foot Jerome L. Greene Science Center will offer classrooms, neuroscience research facilities, state-of-the-art laboratories and a community wellness center. Three ground-floor retail spaces in the building will help revitalize a sleepy stretch of Broadway. Steep Rock Bouldering is building out a 5,300-square-foot climbing gym in one of the storefronts, and Columbia is looking for a coffee shop and restaurant to take over the two other spaces, according to a press release issued in the fall. Next door, the 60,000-square-foot Lenfest Center for the Arts will hold a theater, screening room, performance spaces and art galleries. Both are set to open in May. Meanwhile, earth movers are excavating the northern half of site to build an academic conference center and a new home for the Columbia Business School.
The finished development will bring much-needed public green space, street lighting, trees and widened sidewalks to the surrounding blocks and improve access to nearby West Harlem Piers Park on the waterfront.
By the time the campus is complete in 2021, the university expects that 2,400 people will work there every day. The infusion of students and construction has nearby developers thinking about how they can benefit.
Scott Metzner of Janus Property Company said schools and biotech tenants have been attracted to his office project a block west on Amsterdam Avenue, largely because Columbia’s new campus is so close.
“We’ve talked to everyone from preschools to CUNY,” he said, explaining that the city college system had considered relocating the Guttmacher Institute to one of his buildings.
Biobus, a company that runs educational labs for elementary through high school students, rents space in Janus’ 1351 Amsterdam Avenue. And biotech incubator Harlem Biospace offers shared coworking lab space in another one of Metzner’s properties, the Sweets Laboratories building at 423 West 127th Street. The company, which rents desks for $995 a month, was founded by a Columbia bioengineering professor, Samuel K. Sia, and his wife, Christine Kovich.
Metzner and his partner Jerry Salama are slowly transforming a collection of century-old factories between 125th Street, 128th Street, Amsterdam and Morningside Avenues into offices and retail. Their multibuilding complex, dubbed the Manhattanville Factory District, includes the former Taystee Bakery building, the Sweets building, the Mink building, 1351 Amsterdam Avenue and the Malt House. Asking rents for office space range from low $40s to low $60s per square foot, but city and state tax benefits can halve those numbers.
The pair has been developing housing and office space in west Harlem for 27 years. They watched the community negotiate a fraught development plan with Columbia, which secured a rezoning for a former industrial site west of Broadway in 2007 to build its massive mixed-use campus.
“The community was resistant to what Columbia wanted to do,” Metzner said. “The community board was recommending a lower density zoning than what was approved.”
In response to Columbia’s proposal, the local community board drew up its own land use plan for west Harlem, which was approved by the City Planning Commission in 2007. Several of the board’s recommendations were ultimately incorporated into the 2012 West Harlem rezoning, which changed the zoning of Janus’ properties from low-density manufacturing to mixed-use industrial and residential.
Columbia also spent years in state court fighting a handful of small industrial property owners, so that the Empire State Development Corporation could use eminent domain to seize those lots on the university’s behalf.
Metzner noted that the university spent years working with the neighborhood and committed to provide $150 million in housing, economic developments and legal assistance as part of a community benefits agreement.
“Is it really going to be a vibrant neighborhood?” he said. “Is it really going to succeed? The jury’s out, but I hope it does.”
The Big Retail Bonanza Coming to 125th
For a building-by-building breakdown of what’s coming from east to west, these are four new retail projects under construction along 125th Street.
5-15 West 125th Street between Fifth Avenue and Malcolm X Boulevard – This recently completed three-story retail building hosts a T.J. Maxx, Bed Bath & Beyond, New York & Company and coworking giant WeWork.
100 West 125th Street at the corner of Malcolm X Boulevard – Developer Jeff Sutton’s Wharton Properties made some waves when it leased Whole Foods the ground floor of its new six-story, 200,000-square-foot retail complex. Other tenants include American Eagle and Burlington Coat Factory, both of which opened last year, TD Bank, Olive Garden and Raymour & Flanigan. Whole Foods is supposed to open its doors this summer.
233 West 125th Street between Adam Clayton Powell Jr. and Frederick Douglass Boulevards – A couple doors east of the historic Apollo Theater, the 100-year-old Victoria Theater is being redeveloped into a 26-story building with a 200-key Marriott Renaissance Hotel, 191 rental apartments, cultural space and retail. Half of the units will rent for below-market rates, with 30 percent reserved for folks who make 60 percent of the Area Median Income (AMI), and 20 percent for families who earn 80 percent of the AMI.
The $126 million complex will be split into two connected towers: one for the hotel, the other for the apartments. After sitting abandoned for 20 years, the facade and marquee of the Thomas Lamb-designed movie theater will be restored. The ground floor will likely become a jazz club and restaurant, according to owner Harlem Community Development Corporation, an arm of the Empire State Development Corporation. Roughly 30,000 square feet on the lower floors will be office space for local nonprofits, like Jazzmobile, Classical Theater in Harlem, Harlem Arts Alliance and Apollo Theatre Foundation. The development will also have two black box theaters, which will be convertible spaces that can host fundraisers and receptions. The back of the Victoria theater has already been demolished, and developers Exact Capital and Lam Group expect to hold a ground-breaking ceremony later this month. Work is supposed to wrap by the end of 2018.
324 West 125th Street at the corner of St Nicholas Avenue – Sutton knocked down a neglected, five-story apartment building to construct two stories of retail. The tenants haven’t been revealed yet.
For a lot of players on the Power 100, it’s never about whether they’re on the list. It’s strictly a where question. The real drama is found in who rises and who falls—and why.
Two new players entered the top 10 this year: Gov. Andrew Cuomo and Jeff Sutton of Wharton Properties.
Cuomo, who just two years ago was languishing at No. 28, has muscled his way into the No. 9 spot, in large part thanks to the most ambitious infrastructure proposals since Moses (Robert Moses, we mean). The figure he tossed out during his State of the State address was $100 billion for the city and state’s highways, airports and god only knows what else.
Sutton had been hovering on the edge of the top 10 for years, and he finally broke through largely thanks to the $700 million deal he inked for a new Nike store at 650 Fifth Avenue (SL Green Realty Corp., Sutton’s partner on the building, has long had a place in the top 10).
John Banks also shot up from No. 62 when he was still learning the ropes as the head of the Real Estate Board of New York, to a more powerful No. 40 given the recent success REBNY has tasted in its effort to restore 421a.
Affordable housing seems to be an ever-present issue in New York, and the man who is probably giving the city its best dose of it is L+M Development Partners’ Ron Moelis, who last year was at No. 78, but who felt we should jump him to No. 45.
Some of the adjustments were more modest. Albert Behler of the Paramount Group was No. 67. That seemed low. We jumped him a level to No. 57.
But the biggest jump was without question that of Wu Xiaohui, the chairman and CEO of Anbang Insurance Group who we ranked No. 71 last year thanks to his acquisition of the Waldorf-Astoria. It’s true, Anbang’s multibillion-dollar headline deal with Kushner Companies to redevelop 666 Fifth Avenue fizzled, but there is little question that the Chinese giant is in U.S. real estate for the long haul. Last fall it spent $6.5 billion picking up Strategic Hotels and Resorts from Blackstone. That’s gotta be worth No. 38.
In a retail environment often characterized as the worst in a decade, there is still one place where retail landlords can find refuge from challenging headwinds—and where investors are willing to back their businesses with tens, if not hundreds of millions of dollars.
Israel’s bond market has emerged in recent years as an increasingly popular vehicle for U.S. developers and landlords to raise capital. Using their American real estate assets as collateral, companies—particularly small to midsized players that usually have to rely on mezzanine debt to finance their holdings individually—are able to issue publicly traded, corporate-grade debt at borrowing costs far below what they’d be able to secure in the domestic lending market.
Despite difficult conditions in the retail market nationwide, U.S. retail landlords are now looking to Israel more than ever before and finding success through bond offerings on the Tel Aviv Stock Exchange. In February, retail mogul Jeff Sutton of Wharton Properties issued around $245 million in debt in Tel Aviv at an interest rate under 4 percent, with the bonds backed by a portfolio of Sutton’s prime Manhattan real estate assets.
Other retail players have gotten in on the game as well. In March, New Jersey-based retail and shopping center landlord The Klein Group raised roughly $25 million through its own debt offering—the company’s second such deal on the Tel Aviv Stock Exchange (it raised roughly $60 million in an initial offering in 2015).
And in early 2016, developer Michael Shah’s Delshah Capital raised north of $100 million through a bond issuance backed by Shah’s Manhattan retail properties like 55 and 69 Gansevoort Street in the Meatpacking District (as well as a considerable 1,000-plus unit portfolio of rent-subsidized apartments).
All of this activity has taken place against a backdrop of concern for the U.S. brick-and-mortar retail market. From trendy storefronts in Soho to shopping centers and strip malls in suburbs across the country, retail landlords have been forced to cope with store closures (which are on pace to exceed 8,600 nationally this year, according to an analysis by Credit Suisse released in April), heightened vacancy rates and a drop in taking rents.
Despite their willingness to invest in bonds backed by U.S. retail assets, the Israeli investors who are pouring money into the Tel Aviv bond market are far from blind to the issues that retail landlords are presently facing.
“We’re constantly being asked questions by different investors: ‘What’s the situation [with the U.S. retail market]?’ ” said Yossi Levi, the vice president of Tel Aviv-based financial consultancy InFin, which has advised companies including The Klein Group and Delshah Capital in their Israeli bond offerings.
Levi said that the investment community in Israel is particularly aware of the issues being faced by big-box retailers like Sears and Macy’s, which have announced significant store closures in recent months, and are curious whether such issues within the retail sector at large could possibly affect the real estate companies that have issued bonds in Tel Aviv.
“The ratings agencies are educated about the situation,” he noted. “There is risk exposure in the retail sector; there are vacancies, and it’s scary [for investors]. The main issue is that people bought [retail properties] knowing rents were very high, and now prices are dropping.”
That naturally raises questions about whether American issuers with retail properties—assets whose projected income and cash-flow are a critical part of the metrics used by investors in evaluating companies—will face struggles in the near-term and perhaps even find it difficult to pay back the debt.
With concerns mounting among investors, the onus has fallen on the companies whose bonds are trading on the Tel Aviv Stock Exchange (as well as their advisers) to explain to the market why they are positioned to survive the current conditions.
The new Tel Aviv Stock Exchange building on Ahuzat Bayit Street in Tel Aviv. Photo: Getty Images
“Israeli investors are extremely well informed; they know that retail is not shining at the moment—at least not in the newspapers,” said Jacob Klein, the president of The Klein Group. “When we did our second raise in March, we explained to investors that not all retailers are the same. Obviously, retail is shifting and changing, but not everybody is painted with the same brush.”
Klein, who owns retail properties in Manhattan as well as shopping centers in New Jersey and Pennsylvania, said he told investors his company has little exposure to “big-box” retailers and that its properties are well served by their location to population centers and a diverse tenant mix.
“It’s harder today to find fashion tenants in Manhattan or New Jersey, but there is big demand from food users—every day there’s a new food concept coming up, and they’re all looking for locations,” Klein said. He also noted that service-based retailers are “still thriving,” as well as drug stores and grocery stores (Klein signed Trader Joe’s at his retail condominium unit at 660 Columbus Avenue on the Upper West Side last year).
But Klein and other retail landlords whose companies are now publicly traded entities in Israel still have to play the game of investor relations when it comes to easing market concerns.
“They say, ‘Well, we read that retail in Manhattan is terrible, rents are dropping, vacancies [are rising]’—they know all of this, and they ask direct questions,” Klein said of what he hears from his investors in Israel. “And I tell them, if you look at our portfolio, we are at 98 percent occupancy. We lose a tenant here and there, but we keep working on leasing everything up.”
Shah said that when Restoration Hardware—one of Delshah’s larger tenants, at 55 Gansevoort Street—saw its stock price take a hit in recent months, “I had a few questions from Israeli bondholders about what was going on and whether we were concerned about the lease.”
But Shah said he addressed those worries by explaining that Delshah’s base of stable, credit tenants with long-term leases—including the likes of major clothing retailers J. Crew and the Urban Outfitters-owned Free People—would cope just fine. “I told them I was more concerned that I bought the [Restoration Hardware] stock.”
Long Island-based Namdar Realty Group, a retail owner that completed a $125 million bond raise in Tel Aviv late last year, has faced similar concerns. The company, which owns 15 million square feet of commercial real estate at shopping centers across the country, found itself having to explain to investors that Sears’ recent struggles (the company has announced around 150 store closures in the last few months) would not greatly affect its own business.
The day after Sears announced a recent wave of closings nationally, Namdar and its Israeli market advisers delivered a report to investors detailing the landlord’s exposure to the retailer, according to Israeli market sources—explaining how less than 3 percent of the Namdar portfolio’s operating income came from Sears.
As for Sutton—whose portfolio of assets backing his Israeli bonds include prime Manhattan properties like 747 Madison Avenue, which houses Givenchy—retail concerns didn’t hinder the significant demand his debt offering commanded from Israeli investors, which could have supported a bond issuance of more than twice the $245 million Sutton eventually raised.
Like Delshah, Wharton Properties’ base of credit tenants—with lease lengths exceeding the actual duration of the bonds issued—has served investors well so far. The company’s bonds have recently traded at around a 3.7 percent yield on the Tel Aviv Stock Exchange, below their initial coupon. (Sutton declined to comment for this article.)
But that doesn’t mean that retail-focused real estate players who may look to raise debt in Israel in the future will find the same success, particularly if the brick-and-mortar retail environment continues to deteriorate.
“Remember that we’ve been in this market for almost two years and are close to our investors,” Klein noted. “If I was going to issue new bonds today in Israel, strictly backed by retail, it would probably be a tougher sale to make because of the general environment.”
Retail landlords opting to tap the market in Tel Aviv could expect numerous questions from the investment community about why their company is exempt from retail’s current travails, and “they should be prepared to answer them,” Klein said. “The first question would be, ‘Why is retail in the doghouse? ’”
