The Real Deal New York

Empire State Building tenant seeks $10 million for lost profits

Café Europa lawsuit claims construction has taken a bite out of business
By Leigh Kamping-Carder | March 06, 2012 02:00PM

As the owners of the Empire State Building embark on taking the Midtown landmark public, and battle a court challenge to their plans, one retail tenant is suing over construction blockades erected outside the building.

Café Europa, a casual restaurant chain with 14 Manhattan locations, claims that construction scaffolding and a barrier wall erected outside its front entrance has cut into business by 25 percent, and is seeking $10.4 million in compensation from the Empire State Building Company.

The suit, filed last Thursday in New York Supreme Court, comes on the heels of an investor’s complaint against Empire State Realty Trust and Malkin Holdings, which control the property, over a bid to raise $1 billion through an initial public offering, as Bloomberg News reported.

Café Europa signed a 15-year lease in March 2005 for a ground-floor storefront at the Empire State Building at 350 Fifth Avenue between 33rd and 34th streets, according to a copy of the agreement filed in court. The annual rent started at $410,000, but will jump to $496,100 April 1, and ultimately climb to $600,281 in the last three years of the lease, the agreement says.

Café Europa said in the suit that it also spent $1.2 million converting the space to accommodate the needs of a restaurant, in part to lure some of the many tourists who visit the building each year.

But in mid-November, the Empire State Building owners erected a multi-story barrier and scaffolding, allegedly blocking sidewalk access to the café’s entrance and significantly decreasing foot traffic to the restaurant, the suit says.

“Sales have been dramatically lower since the wall and the scaffolding went up because people don’t know that there’s a café there anymore,” said Café Europa’s attorney, Joseph Goldsmith, an associate at Kossoff & Unger.

Café Europa maintains that these actions amount to a violation of the lease, since it can no longer enjoy the premises as the agreement sets out.

“When my client negotiated the terms of the lease and the rents that they were going to be paying, they did so on the basis of having a ground floor storefront in the Empire State Building,” Goldsmith said. “That’s what their rent per square foot is based upon.”

Though the landlord has not communicated with Café Europa about why it erected the wall and scaffolding or how long it will be up, Goldsmith said, a sign on the scaffolding says work is slated to continue through July 2014.

The signage also indicates that the wall and scaffolding are related to “build-outs” for office tenants on the upper floors of the building, Goldsmith said.

In recent years, Malkin Holdings’ father-and-son team Tony and Peter Malkin have been angling to transform the 2.9 million-square-foot building, once leased to numerous smalltime tenants, into a world class tower worthy of top notch international tenants.

A spokesperson for Malkin Holdings declined to comment.

Next, the defendants will have to respond to the complaint, likely within six weeks, although no deadline has been set, Goldsmith said.

Last week, investor Leon Meyers sued Empire State Realty Trust and Malkin Holdings, claiming they had failed to consider alternatives to becoming a real estate investment trust, damaging stakeholders like himself.