With ICSC in Vegas in two days, guest columnist Michael Stoler on retail investment sales right now in New York.
Timing is everything, especially when it relates to real estate. It is hard to imagine that in April 2010, The Wall Street Journal reported that a partnership led by the Carlyle Group and Crown Acquisitions planned to sell part of the first and second floors of retail space at 666 Fifth Avenue, hoping to fetch between $600 million and $700 million.
The joint venture acquired the retail space in July 2008 for approximately $525 million. Real Capital Analytics reported that the sale of the interest valued the retail space at $6,187 per square foot. At the time of the sale, the Kushner Companies, 666 Fifth’s controlling landlord, retained a 51 percent stake of the retail segment. (Jared Kushner, a principal at Kushner Companies, is publisher of The Commercial Observer.)
The Journal article added that the venture raised the value of the site by buying out existing tenants, like Hickey Freeman and Brooks Brothers, with below-market leases. The venture was eager to sell the space since it had just leased space to Japanese clothing chain Uniqlo, which agreed to pay more than $300 million over 15 years, making its lease one of the most expensive retail ones ever in New York.
Eleven months later, the venture announced an amazing sale of some of the retail space on the base of the office tower. Instead of selling the first and second floors, the venture, including Kushner Companies, announced the sale of the former NBA Store, which occupied the corner of the building at 52nd Street and Fifth Avenue. Spanish retail giant Inditex Group, which owns fashion brands Zara, Pull & Bear and Stradivarious, paid $324 million, or $8,361 per square foot, for the 38,750-square-foot retail space. In addition, Inditex paid $76 million to cover the costs of the early termination of the NBA lease and for improvements at the store, which will serve as the flagship U.S. location of Zara.
That record price of $8,361 per square foot exceeded the 2008 purchase by Longchamp, the Paris-based retailer and manufacturer of bags, clothing and accessories, which paid $48,000, or $8,000 per square foot, for the five-story townhouse at 713 Madison Avenue from heirs of Mailman family.
Crown Acquisitions has been a very active purchaser of retail on Fifth Avenue and elsewhere in New York City. In November 2009, an investment group called GFC Fifth Avenue LLC, comprised of Crown Acquisitions, Goldman Properties, the Feil Organization, Centurion Realty, the Braka family and U.S. Realty, acquired the retail portion of the historic St. Regis New York Hotel at 2 East 55th Street. The joint venture-which owns six other midtown retail properties, including include 590 Fifth Avenue, 717 Fifth Avenue, 1 East 57th Street, 551 Fifth Avenue and 743 Fifth Avenue-agreed to pay $117 million for the 24,700-square-foot space, or approximately $4,737 per square foot.
Kenneth Bernstein, president and CEO of Acadia Realty Trust, stated on my panels and TV shows that New York, especially Manhattan, is under-retailed. If you can find the right location in the boroughs and secure the right mix of tenants, your spot has a great chance of success.
One active purchaser of urban retail is Madison International Realty. Madison is a real estate private equity firm focusing on providing secondary equity capital for Partner Replacements and Recapitalization of Class A properties. In March, Madison International entered into a joint venture with an affiliated entity of the company and Forest City Enterprises. The venture will enter into existing partnerships in 15 mature retail and entertainment properties that are valued by this transaction at $851.5 million, including $499.9 million of debt. Madison will receive 49 percent equity in the partnerships in exchange for an interest of $172.3 million in cash. Subsidiaries of Forest City will retain 51 percent equity interest, serve as asset and property manager, and manage leasing for the joint venture.
The New York City properties included in the transaction were:
- The 42nd Street Retail and Entertainment Complex at 234 West 42nd Street, with nine shops including the AMC 25 cinema;
- The retail component of Harlem Center at 125 West 125th Street. Anchors include Staples, H & M, JPMorgan Chase, Planet Fitness and Dunkin Donuts;
- Atlantic Center at 625 Atlantic Avenue in Brooklyn. Anchors include DMV, Pathmark, Burlington Coat Factory, Party City, Marshalls, Old Navy, Office Max and Sleepy’s;
- The retail component of Atlantic Terminal at 139 Flatbush Avenue in Brooklyn. Anchors include Target, Starbucks, Bath & BodyWorks, Daffy’s and Outback Steakhouse;
- The Heights at 94-110 Court Street in Brooklyn Heights, with anchors like United Artists Cinema and Barnes & Noble;
- Queens Place at 8801 Queens Boulevard in Forest Hills. Anchors include Target, Best Buy, Macy’s Furniture, DSW, Sleepy’s, Outback Steakhouse, Red Lobster, Daffy’s and Skechers;
- Steinway Street Theaters at 3501 37th Street in Astoria, home of the United Artists Cinema;
- Shops at Northern Boulevard at 48-18 Northern Boulevard in Long Island City. Anchors include Stop & Shop, Old Navy, Marshalls, Guitar Center and Chuck E. Cheese’s;
- Shops at Bruckner Boulevard at 1910 Story Avenue in the Bronx. Anchors include Conway, Jimmy Jazz, Old Navy and Marshalls;
- Castle Center at 1865 Eastchester Road in the Bronx, where the anchor tenant is Pathmark;
- Shops at Gun Hill Road at 1806 Gun Hill Road in the Bronx, where the anchors are Home Depot and Chuck E. Cheese’s;
- Shops at Richmond Avenue at 2505-2535 Richmond Avenue in Staten Island. Anchors include Staples, Men’s Warehouse, Starbucks, Vitamin Shoppe, Sleepy’s and Bank of America;
- and Forest Avenue Cinemas at 2474 Forest Avenue in Staten Island, which is anchored by United Artists Cinemas.
MADISON CAPITAL (no relationship to Madison International) is an established real estate investment and operating company based in New York. Madison’s urban retail and mixed-use strategy is focused on acquiring prime urban retail and mixed-use assets in major urban markets like New York. The company’s current retail investments include prime retail sites at 655 Fifth Avenue and 100 Broadway, puchased last October.