The Real Deal New York

Fifth (Avenue) Amendments

New retail projects are reshaping the corridor after a long stretch of little development, but are they well timed?
By Rich Bockmann | July 01, 2016 11:30AM

5th-avenue-mapFifth Avenue is not usually a New York City laggard, but it’s been a decade since a major development has gone up on the tony stretch.

Back in 2006, the Midtown-based Stawski Partners TRData LogoTINY built the 325,000-square-foot tower at 505 Fifth Avenue (at the corner of 42nd Street). That building is home to the private equity firm American Capital and Norges Bank on the office floors and H&M’s more upscale brand COS on the retail levels.

Before that, you’d have to go back a few more decades to the boom of the 1980s, when a certain developer (who is now running for president) built the 58-story Trump Tower at 725 Fifth Avenue. “The reality is that Fifth Avenue is kind of a tired block,” said Eric Anton, an investment-sales specialist at the commercial brokerage HFF.

“The shape and substance of Fifth Avenue hasn’t changed in the last 25 to 30 years,” he added, “[but] with the amount of new construction now, we’re seeing the avenue start to change substantially.”

Up and down Fifth Avenue, real estate players have plans for projects ranging from ground-up developments to additions and gut overhauls. By The Real Deal’s count there are no fewer than seven major projects or trades either being buzzed about, planned or underway on the corridor between 43rd and 57th streets.

Still, observers are watching these projects closely as worries swirl about a possible bubble in New York’s retail market — especially as new (and in some cases less experienced) players start doing deals on the avenue.

“Generally speaking, it takes somebody with retail expertise, experience and tenant relationships to achieve what’s been accomplished along Fifth Avenue in these buildings,” said Woody Heller, head of the capital markets group at Savills Studley. “That’s the reason Haim Chera, Jeff Sutton, Joe Sitt and the others in that tight retail circle have been so successful.” Heller noted that whether the projects planned for Fifth Avenue actually proceed depends largely on if the developers secure financing. “The change in market dynamics has made [locking in financing] more difficult for the various uses being contemplated,” he said.

In any case, here’s a look at the major projects and deals that could change the face of Fifth.

666 Fifth Ave., Inset: Zaha Hadid

666 Fifth Avenue (inset: Zaha Hadid)

666 Fifth Avenue

If Fifth Avenue has been asleep on the development front, then what better way to wake it up than with a starchitect design?

Before her unexpected death in March, Pritzker Prize-winning architect Zaha Hadid reportedly drew up plans to transform 666 Fifth — a 1950s-era, aluminum-sheathed office building — into a soaring 1,400-foot-tall mall, hotel and residential tower. Developer Jared Kushner and real estate investment trust Vornado Realty Trust — which own the 1.45 million-square-foot office portion of the 41-story tower — were reportedly kicking around Hadid’s design last summer. The plan would have “restacked” the building, essentially tearing it down to the bare bones and building it back up again.

The design also called for a “vertical retail podium” to rise above the building’s two floors of existing retail. Given how lucrative Fifth Avenue retail can be, it’s not surprising that the owners would want to add more retail space to the property. A recent nearby deal with Coach (see below) was inked at about $4,000 per square foot on the ground level. And Kushner — who famously paid a record $1.8 billion for the building in 2006 —  sold the retail portion of the building (along with his partners the Carlyle Group and Crown Acquisitions) to Zara and Vornado in two separate deals for a combined $1 billion. Kushner and Vornado didn’t return calls for comment and it’s unclear whether they are still considering the redesign.

Sources say the restacking seems ambitious at best. It would also be tricky given that the building is 95 percent occupied, according to CoStar Group data. Robert Fuller, of architecture and design firm Gensler, said it would be difficult to pull off the redesign given the 1,400-foot height. But, he said, it all comes down to whether the returns outweigh the costs.  “It’s all about returns,” he said. “The returns on a project like that, especially considering the value of the residential and particularly the retail on Fifth Avenue, could offset those costs.”

717 Fifth Ave.

717 Fifth Avenue

685 Fifth Avenue

For years it was known as the Gucci Building, but the 20-story property at the southeast corner of 54th Street could soon get a new luxury-brand moniker.

The Turkish jeweler Gülaylar Group — or rather it’s real estate arm — is planning to add five stories to the building and to convert the existing office space into a five-star hotel, sources told TRD.

Gülaylar went into contract in March to purchase the office portion of the building for $160 million from General Growth Properties and Joseph Sitt’s Thor Equities, which held onto the valuable retail space at ground level.

GGP and Thor bought the building from Gucci in 2014 for $460 million and had a contract in place with broker-turned-developer Michael Shvo to sell the upper office floors for north of $110 million. But sources said Shvo backed out of the deal earlier this year, opening a window for the Turkish firm.

Coming off of that blow, in February, the two partners signed luxury handbag retailer Coach to a 23,400-square-foot lease. Coach is reportedly paying about $4,000 a square foot, though Thor and GGP are said to have thrown in concessions to seal the deal.

Gülaylar’s real estate division is best known — at least in New York real estate circles — for developing a shopping mall for the jewelry industry inside a three-story retail condo at the base of Extell Development’s International Gem Tower in the Diamond District.

717 Fifth Avenue

The Chinese insurer Anbang is venturing beyond Park Avenue — even if it’s only by two avenues. The firm — which broke a record last year when it plunked down nearly $2 billion for the Waldorf Astoria — bought the office portion of 717 Fifth Avenue from the private equity firm Blackstone Group for $415 million in May.  The 350,000-square-foot space, which is anchored by Merrill Lynch, sits atop a retail condo owned by Jeff Sutton and SL Green Realty, which is home to a massive 18,400-square-foot Dolce & Gabbana store.

While Anbang is planning to convert a majority of the 1,400 rooms at the Waldorf  — which it also bought from Blackstone — into condos, executives there seem content to keep the property as an office building.

Anbang tapped a Cushman & Wakefield team to market some 138,000 square feet of available space in the building.

562-564 Fifth Avenue

Details are scarce on Extell’s plans for its assemblage at the northwest corner of 46th Street. But rest assured that whatever Extell’s chief Gary Barnett has up his sleeve, it’s sure to catch people’s attention.

Last year Barnett struck a pair of deals with Thor and SL Green to take control of 562-564 Fifth at the corner of 46th Street, on the opposite side of the block from the International Gem Tower he developed in 2013.

Extell has assembled several hundred thousand square feet of air rights on the block but so far has been mum on its plans. Still, in May company reps filed permits to demolish the 12- and 7-story buildings at the corner, suggesting that the firm is preparing a new project.

562-564 Fifth Ave.

562-564 Fifth Avenue

693 Fifth Avenue

In May, French billionaire Marc Ladreit de Lacharrière bought the office-and-retail building anchored by Italian fashion house Valentino for $525 million from Thor.

It’s unclear what Lacharrière plans to do with the glass-fronted building. The deal appears to be the first big play in New York City for the billionaire, who is the CEO of Fimalac, the Paris-based holding company that owns minority stakes in Fitch Ratings and private equity firm Warburg Pincus.

The deal could, however, signal a broader ownership shakeup along Fifth Avenue.

Sitt — who sold the 20-story building for four times what he paid in 2010 — is also actively looking to unload a bunch of other properties on Fifth (and elsewhere). But where Sitt is looking to get out, there still seem to be others looking to get in — even at top-of-the-market prices.

“Right now, I think the buyer of that product is essentially a wealth-preservation buyer. Foreign capital is the most likely,” said Marcus & Millichap’s Nat Rockett, who brokered the sale of 693 Fifth to Sitt in 2010 for $142 million.

And with the recent Brexit vote, Rockett added, there could be an influx of foreign capital competing for core properties.

730 Fifth Avenue

When Shvo and Russian developer Vladislav Doronin bought the office portion of the Crown Building — which spans from floors four to 26 — for $500 million last year, they stoked speculation that they’d convert the space to luxury condos. (That may be largely because that is the space Shvo has been playing in).

But so far they’ve been quiet about their plans.

Still, sources told TRD that the partners, who bought the space from Sutton and GGP, are negotiating buyouts with office tenants behind the scenes. Tenants in the building include private equity firms KKR and Apollo Management.

Sutton and GGP, who paid $1.8 billion for the entire 26-story building, still own the retail. In March, they signed the jeweler Bulgari to a record-breaking $5,500-per-square-foot lease. Shvo did not respond to a request for comment.

520 Fifth Ave. Inset: Louis Ceruzzi

520 Fifth Avenue (inset: Louis Ceruzzi)

520 Fifth Avenue

Ceruzzi Properties and its Chinese partner, Shanghai Municipal Investment, are planning a $1 billion condo at the site of this 71-story tower, which sits at the corner of 43rd Street.

Thor, the building’s previous owner, was originally planning to develop a hotel on the site but instead sold it to the partners for $325 million.

The duo is planning to develop a three-story retail base topped with 180,000 square feet of condos and a hotel with 150 to 180 rooms.