FAO Schwarz exercised its option to extend the lease on its iconic 767 Fifth Avenue location for “fair market value” just three years after preparing to leave, according to Bloomberg News. Boston Properties, which bought the GM Building for a record $2.8 billion in 2008, was so sure FAO Schwarz would vacate its three-flour, 66,465-square-foot retail space when the lease expired in 2012, that the property owner began marketing the property for a new tenant. Now the two parties have entered arbitration over the rent. Shortly after purchasing the 1.77 million-square-foot building, Boston Properties said FAO Schwarz was not the most financially viable tenant considering the under-market rent it currently pays. The stretch of Fifth Avenue between Rockefeller Center and Central Park is the world’s priciest retail real estate. But Toys “R” Us, which owns FAO Schwarz, doesn’t want to endure the difficulty of finding a different Fifth Avenue location and can’t relocate the store to Times Square for fear of competition with its own flagship store. [Bloomberg]

Boston Properties President Doug Linde talked about buying out some of
the GM Building’s under-market leases, including that of anchor retail
tenant FAO Schwarz, after Boston Properties’ $2.8 billion purchase of
the building last year. Cushman & Wakefield’s C. Bradley Mendelson,
Boston Properties’ broker, is now marketing the 66,465-square-foot FAO
Schwarz space, which is spread across three floors, according to the
New York Post. The retailer reportedly now pays just over $70 per
square foot for the space. FAO Schwarz’s lease ends in 2012 and it
appears to be shopping for a smaller store. Comments