Extell Development asked a judge to let it charge one of its parking garage tenants, Enterprise Rent-A-Car, as if it were leasing retail space at the base of a luxury tower.
Gary Barnett’s firm filed suit against the car rental firm over a rent reset at 12 West 48th Street, where the developer manages a parking garage.
Enterprise occupies 11,000 square feet at the six-story, 51,000-square-foot garage. The firm’s lease calls for rent to be adjusted periodically, to account for changes in the property’s “fair market value.”
In the complaint, Extell’s lawyer asserts that reappraisal should be performed based on possible uses of the property – which has just over 90,000 square feet of buildable space, according to Reonomy – rather than its actual, present use.
The building, the suit reads, “is currently used merely as a parking garage for the operation of a car rental business. i.e., a use far less than its highest and best use. There are five years left on the lease. The ‘fair market value’ of this property as a retail or development site is thus considerable.”
Enterprise apparently wasn’t impressed by this logic.
“For obvious reasons,” the claim states, “the tenant insists that the appraisal be done based on the use of the space as a parking garage.”
A lawyer unaffiliated with the case who examined the documents was similarly unmoved.
“In my view it’s pretty stupid,” said Adam Gilbert, a partner at Nixon Peabody specializing in real estate litigation and real estate valuation issues.
The building is leased, Gilbert said, and not available for development. Another tenant, Central Parking, occupies the remainder, according to CoStar.
The lawsuit “suggests Extell can get to the land,” he said. “There’s no evidence of that.”
He also pointed to a provision of the lease cited in the complaint that calls for “a commercial real estate broker familiar with the operation of the parking garage business in the City of New York” to arbitrate a potential disagreement between landlord and tenant.
That provision, he said, clearly suggests the sides agreed to appraise the property as a garage. Extell is “just reading that out,” Gilbert said.
Finally, the complaint makes clear the parties have previous performed rent resets according to these rules. At those times, Extell seems to have agreed to value the space as if it were part of a parking garage, Gilbert pointed out.
“There are a number of arguments here available to the defense,” said Gilbert. “This case is going nowhere. It’s regrettable that [Extell] brought it.”
Another lawyer who looked over the complaint said Extell’s logic is more appropriate in negotiations with ground lessors. In those cases, appraising according to the property’s “highest and best use” is often appropriate, that attorney said.