Madison Capital in contract to buy ground lease at 71 Fifth Ave.

Firm to pay $85M up front for fee, with yearly rents starting at $3.5M

71 Fifth Avenue and Richard Wagman
71 Fifth Avenue and Richard Wagman

UPDATED, 4:37, p.m. Oct. 13: Madison Capital is in contract to acquire a ground lease on a Flatiron District office-and-retail building for nearly $85 million up front, with annual rent payments starting at $3.5 million.

The Midtown-based investment firm, which favors mixed-use properties with strong retail components, recently signed a hard contract to acquire the fee position of an 11-story building at 71 Fifth Avenue, where home furnisher Pier 1 Imports anchors the retail base, sources told The Real Deal.

A representative for Madison declined to comment.

The company will pay about $85 million up front and then make rent payments that start at $3.5 million per year with rent resets scheduled for every 25 years of the 99-year term, according to a source familiar with the negotiations. The rent will reset to the highest and best use of the property at the time.

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The owner of the property, located at the corner of East 15th Street, is a partnership between the family firm Samco Properties [TRDataCustom] and the family of WeWork’s global real estate chief Mark Lapidus. Samco and Lapidus will continue to own the land beneath the property.

The 153,000-square-foot building is fully leased, according to CoStar Group. Ovation Corporate Travel occupies the largest chunk — at 26,000 square feet — on a lease that expires in 2019.

Retail rents in the area have ticked down recently amid a broader pullback in the city’s retail sector. Average asking rents for ground-floor space on Fifth Avenue between 14th and 23rd streets fell 4 percent year-over-year to $385 per square foot, according to the Real Estate Board of New York’s spring retail report.

Madison Capital, founded in 2002 by Richard Wagman and J. Joseph Jacobson, recently sold a 30,000-square-foot retail condominium unit it co-owned with PGIM Real Estate on West 75th Street to Vanbarton Group for $103.5 million.