UPDATED, 10:42 a.m., Oct. 20: The city Board of Standards and Appeals approved Scholastic’s plans for a retail conversion project at its corporate headquarters in Soho, but there’s a catch.
The greenlight stipulates that the total retail component must be limited to 10,000 square feet per store, putting a big question mark on Madison Capital’s $400 million bid for the retail. Scholastic sought to relocate the office lobby and expand the retail at the connected properties at 549-555 and 557-559 Broadway.
“Those conditions likely kill the Madison deal, because it makes the retail much less valuable,” said a source familiar with negotiations.
In the spring, the publicly-traded children’s publishing, education and media company shopped a retail component it proposed could grow to at least 32,000 square feet. As part of a deal, portions of the second and third floors were to be vacated, so they could be used as retail instead of office. A request to Community Board 2 in June shows Scholastic was seeking 8,600 square feet for retail on the second floor, rather than the full floor as previously reported.
Bidders such as Jeff Sutton’s Wharton Properties, Joseph Sitt’s Thor Equities, and Bobby Cayre’s Aurora Capital Associates vied for the space. Madison Capital won the bid, but ultimately did not sign a contract as Scholastic paused its plans.
In a Sept. 24 earnings call, Scholastic announced it would begin construction on the project in November. That construction will include the relocation of the building lobby at the 557 address from Broadway to Mercer Street, and the conversion of the office lobby to a 7,400-square-foot retail space.
The board ruled Friday that individual retail units at the 557 building cannot exceed 10,000 square feet, due to zoning regulations. The other conditions refer to “limits on the signage and illumination,” a spokesperson for the board said.
Sources said they expect the asking rent for the new ground-floor retail space to ask more than $1,000 per square foot.
The two properties, located between Prince and Spring streets, collectively have frontage at 120-130 Mercer Street. The Scholastic Store closed in January, while Hugo Boss and Sephora both have long-term leases.
Madison Capital, a Midtown East-based investment firm led by Richard Wagman and J. Joseph Jacobson, declined to comment. A spokesperson for Scholastic could not be reached.