As the divide widens over an appropriate rent for prime ground-floor retail digs, a landlord and a retailer are deadlocked in a duel on the streets of Madison Avenue.
The dispute between Barneys, the retailer with racks lined with high-end brands, and Ashkenazy Acquisition Corporation over the 230,000-square-foot flagship store at in the Upper East Side is nearing a conclusion, with the landlord seeking to triple the rent.
An arbitrator was assigned last year after the high-end department store unsuccessfully tried to negotiate a lease extension at 660 Madison Avenue with its landlord, Ashkenazy.
The 20-year contract is due to expire in 2019 and Ashkenazy is seeking to triple the store’s annual rent to $60 million for the ground-floor storefront and eight other floors it holds in the building.
But $60 million in rent is beyond what Barneys can do, says Richard Hodos, vice chairman of retail at CBRE who is not involved in the deal. “While $20 million is low, it’s not that low,” Hodos said. “Could they afford $25 million? Maybe. Could they afford $30 million? Probably not.”
Losing the store would be a huge blow for Barneys. Citing sources, the New York Post reported in December that the Madison Avenue shop – then one of 24 nationwide – makes up at least one-third of the company’s total revenues. The arbitrator is expected to begin deliberating in June, which was first reported by Women’s Wear Daily, and a decision will be made within 30 days after the process begins.
Asking rents for ground floor retail space on Madison Avenue, between 57th and 72nd streets, averaged $1,405 per square foot in the last quarter of 2017, down $200 since the start of 2016, according to JLL’s quarterly Manhattan retail report.
Before the financial crisis in 2008, Hodos said he understood Barneys was making around $300 million in annual revenue from its Madison Avenue store. But with competitor Nordstrom opening new locations in Manhattan and Barneys having opened a new store in Chelsea two years ago, there has been added downward pressure being put on sales at its flagship location, Hodos said.
“It’s not the Gap … so they can’t afford anywhere near what a vertically integrated retailer could afford,” Hodos said, referring to retailers who sell their own brand.
There is speculation, however, that the two parties will reach an agreement even if the arbitration is unsuccessful. “I don’t see anyone else taking the entire building,” said Robin Abrams, vice chair of retail operations at Eastern Consolidated. She is not involved in the deal. “Either they agree, or they don’t agree, and they talk about Barneys leasing less space.”
Barneys’ corporate office could not be reached for comment Tuesday. An Ashkenazy representative declined to comment.
While the future of the high-end retailer is yet to be determined, Barneys is showing no signs of slowing down. This weekend, its Beverly Hills flagship in Los Angeles will put on a showcase with the fashion blog Highsnobiety and feature 90 brands, with a live music performance. And last month, the company launched “The Barneys Podcast,” which airs interviews with fashion icons, including designers Rick Owens and Jonathan Adler.