Delshah sues retailer Free People for $11M after terminating Meatpacking lease

Parent company Urban Outfitters stopped rent payments in March

TRD New York /
Jul.July 20, 2020 04:50 PM
Delshah Capital's Michael Shah, 58-60 Ninth Avenue and Urban Outfitters CEO Richard Hayne (Google Maps)

Delshah Capital’s Michael Shah, 58-60 Ninth Avenue and Urban Outfitters CEO Richard Hayne (Google Maps)

The list of lawsuits between retail tenants and landlords grows longer by the day. More than demanding a few months in rent arrears, some landlords are now going all out to demand that tenants pay up the full value of their leases.

Michael Shah’s Delshah Capital is one landlord taking that hardline approach against Urban Outfitters subsidiary Free People. Delshah’s retail tenant at 58-60 Ninth Avenue in the Meatpacking District stopped paying rent in the early days of the coronavirus pandemic.

In a lawsuit filed late last month, Delshah says it terminated Free People’s lease on June 10 after the retailer missed two months’ rent. The suit seeks damages equal to back rent plus “all rent that would have been due for the remainder of the lease term” for a total of nearly $11 million.

The 6,800-square-foot Free People lease was set to expire in January 2027 and is worth $1.4 million a year, loan documents show. The property also has three residential units whose total annual rent was $297,600 in 2017.

Although the tenant paid a portion of its arrears in late May, the landlord says that this was not enough to cure the default on the lease. Delshah and Urban Outfitters did not respond to requests for comment.

Free People’s relationship with the landlord had been strained from the start, when Delshah delivered the space to the tenant more than a year later than planned, in the summer of 2016.

Claiming that the delay caused it to miss the 2015 holiday retail season and damaged its reputation and stock price, Free People sought 825 days of rent credit or nearly $3.2 million in damages. A judge eventually ruled that Delshah owed just $650,000 for the delayed delivery.

Delshah acquired the 11,000-square-foot mixed-use building for $18.2 million in 2013. In 2017, the developer secured a $28 million CMBS loan for the property along with another nearby retail building at 69 Gansevoort Street. Delshah sought Covid-19 relief for the loan in April, according to servicer commentary. The loan became more than 30 days delinquent in May but is now current.

Urban Outfitters announced in late March that it would not be paying rent at stores closed due to coronavirus. Urban Outfitters’ Herald Square landlord, Empire State Realty Trust, also sued the retailer last month over $1.2 million in unpaid obligations.

A similar lease termination dispute is playing out at a Gap store in the Financial District, where landlords Crown Acquisitions and Prime Property Fund are seeking to terminate Gap’s lease in a move that could leave the retailer on the hook for more than $60 million in future rent.

In other legal proceedings, Delshah recently secured two money judgments totalling $5.6 million against developer Jack Terzi, in connection with distressed notes on the retail condos at 27 West 72nd Street and 31 East 28th Street. Terzi had earlier accused Delshah of “colluding” with lender Signature Bank to manufacture defaults on the two notes.

Contact Kevin Sun at [email protected]


Related Articles

arrow_forward_ios
Simon Property Group’s David Simon and Gap CEO Sonia Syngal (Getty, Wikipedia, iStock)

Simon strikes back at the Gap with $107M lawsuit

Simon strikes back at the Gap with $107M lawsuit
82-10 Baxter Avenue and 3111 Heath Avenue (Google Maps)

Queens retail sale tops mid-market deals of the week

Queens retail sale tops mid-market deals of the week
Mayor Bill de Blasio (Background by Jamie McCarthy/Getty Images; de Blasio by Lev Radin/Pacific Press/LightRocket via Getty Images)

Outdoor dining may continue into winter

Outdoor dining may continue into winter
B. Riley Real Estate president Michael Jerbich and  J.C. Penney CEO Jill Soltau (Getty, Linkedin, J.C. Penney)

J.C. Penney taps Cushman, B. Riley to sell 163 locations

J.C. Penney taps Cushman, B. Riley to sell 163 locations
Brookfield Property Partners CEO Brian Kingston and Burlington Mayor Miro Weinberger (Brookfield; Weinberger by Vermont National Guard)

Brookfield’s nixed mall redevelopment may signal strategy shift

Brookfield’s nixed mall redevelopment may signal strategy shift
The closures will primarily affect low-volume sales locations (Photo by Alexi Rosenfeld/Getty Images)

Dunkin’ to shutter 800 US locations

Dunkin’ to shutter 800 US locations
Right to left: 831, 835 and 837 Madison Avenue (Google Maps)

“The ’57 Chevy in that old lady’s garage”: Madison Avenue buildings up for sale in litmus test for retail real estate

“The ’57 Chevy in that old lady’s garage”: Madison Avenue buildings up for sale in litmus test for retail real estate
Lord & Taylor and Men’s Wearhouse are just the latest big retail chains to file for bankruptcy (Lord and Taylor by Bruce Bennett/Getty Images; Men's Warehouse by Scott Olson/Getty Images)

Lord & Taylor, Men’s Wearhouse file for bankruptcy

Lord & Taylor, Men’s Wearhouse file for bankruptcy
arrow_forward_ios

The Deal's newsletters give you the latest scoops, fresh headlines, marketing data, and things to know within the industry.

Loading...