Over the past several years, some of the city’s top retail investors had been eyeing a small, down-in-the-tooth property at the corner of Spring Street and Broadway in Soho. Among its suitors: Vornado Realty Trust, SL Green Realty, Invesco and Crown Acquisitions.
During the boom years, potential buyers first started offering about $85 million. That rose to $105 million and then to $110 million for the two-story property, Abe Goldstein, a member of the family that owned the building, and who managed the sale of the property, told The Real Deal. He did not sell at the time, sensing values were rising. “We really felt the building would go up in price,” said Goldstein, speaking by phone from China Monday, where he is on a business trip.
He was right.
On Dec. 20, a partnership of Jeff Sutton, Joe Sitt, Bobby Cayre and the Adjmi family closed on the purchase of the building that PropertyShark.com shows has about 43,888 square feet of development rights, for about $150 million, a per-buildable-square-foot record for Soho retail.
The new owners plan to demolish the existing structure and develop a two- to five-story glass-walled building, depending on a tenant’s needs, and pending approvals from the city Department of Buildings and Landmarks Preservation Commission, sources familiar with the plans said. The building is expected to be ready for occupancy in mid-2014.
It would be the first ground-up New Construction On Broadway in Soho in years. And the path from the first offers to the no-contract sale was not a straight line.
Goldstein’s father, Zoltan Goldstein, purchased the building circa 1980 for about $1 million, Goldstein said. For the next decade, the family ran a wholesale and retail hosiery store in a portion of the building, and rented the rest to other tenants. In about 1990, they closed the store, and continued to rent it out to other tenants. (Goldstein remains in the hosiery business.)
In about 2005, Sutton, one of the city’s most active retail owners with investments estimated to be worth nearly $2 billion on Upper Fifth Avenue, Times Square, Soho and other areas, first made overtures to Zoltan to net lease the building.
Those early efforts by Sutton never materialized. Meanwhile, other investors and some retailers took a closer look at the property. Zara, sources said, was looking to buy it for its own use. In addition to Vornado, SL Green and Crown, Cayre and Adjmi sought to buy the property. Retailers like Microsoft, Michael Kors, Nike and Adidas approached him to lease the building, Goldstein said.
Sutton continued to pursue an acquisition — meeting with Goldstein or his father over the years in Williamsburg and Borough Park. “Over the last two years every day there were phone calls for the building,” Goldstein said, although he noted that Sutton was the most persistent suitor.
But Goldstein, although he is involved with real estate development in Brooklyn, was wary of getting tied up with a contract for this property, and wanted to close before the end of the year to avoid paying higher capital gains taxes. So he made the extremely unusual demand to all potential buyers that the hefty cash for the purchase be wired to his title company with no contract. The deed would be signed over and the money released to his account on the closing.
“The biggest challenge to this deal was to meet the seller’s terms. There was no contract and you had to wire the money and close with no due diligence,” Adelaide Polsinelli, executive director at investment sales firm Eastern Consolidated, said.
The total price tag is a record for a retail property in the Soho submarket, figures from Real Capital Analytics show. The sale price yields an eye-popping figure of $3,418 per developable foot, a record as well, insiders said.
“There are so many contracts made in New York City, and until the closing, it takes this and that, and there are a lot of fights. I wanted to sleep at night. Let’s go straight to closing,” Goldstein said. “It was my idea and it worked.”
Despite the seven-year process to land the property, by early December, with time running out, Sutton and his partners did not have a deal. Then on Friday, Dec. 14, Sutton called Goldstein.
“‘This is my offer to you. This is what I can do. The money is ready,’ ” Goldstein recalled Sutton saying. The price was about $150 million, including about $3 million to pay a defeasance penalty, because there was a securitized loan on the property.
The following Tuesday, Sutton agreed that he and his partners would wire the money the next day on December 19, a day before the closing, although there was no contract. That seemed to bring an additional level of calm to Goldstein, a source said.
Goldstein said the purchase went off without a hitch.
Sutton, Goldstein, Sitt, Goldstein’s attorney Gary Meltzer, a partner at Meltzer, Lippe, Goldstein & Breitstone, and several other people met at the law office of Morris Missry, a partner at law firm Wachtel Masyr & Missry, who represented the buyers, on Dec. 20. Over the day, the group ate bagels and made small talk while the lawyers hammered out small details. The deed was signed over to the new owners and the money in escrow was released to Goldstein’s account.
“It was like a normal closing,” Goldstein said.
The buyers will reach out to tenants in the coming months, insiders said. They will likely look to the retailers that wanted to lease the building, Goldstein said. One insider said the new owners are looking for between $1,200 per square foot and $1,500 per square foot on the ground floor, for one or two tenants.
“It’s Main and Main,” Polsinelli, who was representing an investor who sought to buy the property, said.
Joanne Podell, executive vice president at Cushman & Wakefield, said she believed they might get that number if a major retailer opens a flagship store there. Although, she added, with new construction the numbers can be imprecise because the cost of construction can be folded into the lease.
Another potential tenant is the luxury retailer Prada, which has a lease expiring in about a year at its current 575 Broadway location, at Prince Street, insiders said. Sutton has Prada as a tenant at 724 Fifth Avenue, a building between 56th and 57th streets.
The buyers have hired the architecture firm BKSK Architects – which redeveloped Cayre’s Aurora Capital Associates Meatpacking District building at 21-27 Ninth Avenue, which is home to Sephora and others – to design the new building, sources said. Cayre, an active owner and developer of retail properties, is seen as an expert in construction, a source involved in the deal said.
“This is real frontage, a real glass store,” one insider said.