The Real Deal New York

Jeff Sutton begins $100M bond issue on Tel Aviv market

The issuance is backed by 18 NYC retail properties valued at $833M
By Chava Gourarie | February 08, 2017 11:06AM

From left: 747 Madison Avenue, 40 West 34th Street and Jeff Sutton

Jeff Sutton is seeking to raise up to $100 million in bonds on the Israeli market, according to documents published with the Tel Aviv Stock Exchange.

The retail mogul filed a prospectus with the stock exchange Tuesday morning, and plans to begin pitching to prospective Israeli investors this week.

This will be Sutton’s second attempt to enter the Israeli market. He was thwarted during a 2015 attempt to raise somewhere in the vicinity of $500 million, when Israeli investors balked at the terms of that issue. The revised offering is a more straightforward issue, backed by 18 retail properties in Manhattan and Brooklyn, worth $833 million, according to the documents. Sutton’s share in the portfolio is valued at $722 million.

In the coming weeks, Sutton will market the offering in what’s known as a roadshow which will gauge investor interest and determine the interest rate of the final bond offering.

The 18 assets exclude Sutton’s Fifth Avenue properties, and includes three prime Midtown assets, 747 Madison Avenue, home to Givenchy, and 29 and 40 West 34th Street, home to American Eagle. The portfolio has a 99 percent occupancy rate, according to the documents, and generated $19.1 million in revenue in the first three quarters of 2016, a 2.6 percent increase from the same period in 2015. The three Midtown properties accounted for over 50 percent of those revenues, all of whom have leases ending in 2024 or later. Other tenants in the mix include pharmacies, cell phone stores and low-end shoe stores.

Investors have a fair amount of confidence in Sutton’s revised offer, said Yaniv Saylan, an analyst at IBI Investment House. They prefer the asset mix in this issue, which may not include Sutton’s “sexiest” assets, but are nevertheless prime retail.

Since Sutton was last in Israel, he secured a $195 million refinancing of the Soho retail building at 529 Broadway, and signed the year’s most expensive retail lease, with Nike taking 60,000 square feet 650 Fifth Avenue starting at $35 million a year.

The bonds are slated to mature in 2024, with four interest payments a year. Sutton is required to maintain equity above $300 million and an equity ratio above 30 percent throughout the life of the bond, documents show. There is no minimum on the portion of the $100 million he must raise.