Restoration Hardware’s foray into the Miami Design District was supposed to jump-start the redevelopment of a less glamorous part of the high-end retail and dining neighborhood.
But now the deal has turned into a train wreck.
Restoration Hardware is suing its landlord, an entity connected to Apollo Commercial Real Estate and Michael Comras, alleging that the partners didn’t hold up their end of the deal and are seeking to push RH out of its lease. RH, which says it began paying rent in November, alleges Apollo and Comras are stonewalling its plans and preventing it from using the eight properties on Northeast 39th Street, from North Miami Avenue to Northeast First Avenue. It has yet to open.
The high-end home furnishings retailer signed a four-year lease last year for a gallery space, with the expectation it would open by the end of 2021. Gross annual rent started at $1.6 million, according to a copy of the lease.
The lawsuit reveals that RH was also finalizing a long-term lease at the Savoy Hotel on Ocean Drive in Miami Beach. Under that proposed deal, the Savoy Hotel would rebrand as a RH hotel, with plans for RH to spend upward of $100 million on renovations. It’s unclear if the deal is still in the works. Allied Partners, which owns the property, did not immediately return a request for comment.
RH filed the lawsuit in Miami-Dade Circuit Court in January. At the heart of the dispute is RH’s goal of connecting neighboring properties into a combined title so that RH could operate one single gallery/store with connecting pathways.
The Design District properties RH leased
But that plan hit a roadblock: The retailer was required to get Apollo’s signoff before the city of Miami could approve or deny the unity of title, according to RH’s lawsuit.
Apollo declined to comment.
As negotiations between RH Chairman and CEO Gary Friedman and Apollo and Comras dragged on, Friedman doubled down on his goal, according to text messages attached to the court docket that were obtained by The Real Deal, and that have since been removed from the public record.
“You’ve got good cash flow, no capital investment, no fucking around with a bunch of buckethead tenants with multiple leases, and an anchor tenant that gives you a much better chance of renting the other space,” Friedman texted Comras in April 2021.
In a motion filed in June to dismiss the lawsuit, the Apollo/Comras entity argued that RH was required to take the lease as written. Apollo/Comras also claim the lease does not require the landlord to file any applications with the city of Miami. Apollo and Comras further allege that RH failed to submit plans to the landlord prior to its deadline of July 6.
Apollo/Comras also said RH tried to shield Friedman from being deposed for longer than two hours, arguing that he did not have direct knowledge of construction documents and drawings, according to a since-removed motion filed Sept. 11. Text messages from the lawsuit, however, show that Friedman was very involved in negotiations over the site.
At one point, Friedman texted Comras to “do something big or stay put” and referred to the site as “the no man’s land” of the district, according to the motion.
Friedman wrote that the boom the Miami Design District is experiencing is only temporary because of Covid, and soon people would move back to New York City and other areas.
Friedman did not immediately return a request to comment. RH’s attorney also did not return a request to comment.
“We can help you legitimize the next couple of blocks and enter into real discussions with the right tenants for the next generation,” Friedman wrote. “Otherwise you risk the status quo, and the same pile of crap.”
Apollo and Comras’ short-term plan had called for pop-up shops and restaurants surrounding Restoration Hardware. Eventually, it planned a major redevelopment.
Friedman also warned Comras to tell Apollo “not to make the same mistake twice,” likely referring to the site’s convoluted history.
From 2015 to 2016, RedSky and JZ Capital paid top dollar to acquire more than 2.5 acres along Northeast 39th and 40th streets from North Miami Avenue to Northeast First Avenue. The assemblage mostly consisted of smaller retail buildings. In total, RedSky and JZ paid about $236 million. Apollo provided about $220 million in financing to RedSky and JZ.
But RedSky, one of the more aggressive buyers in Downtown Brooklyn, ran into financial issues. RedSky and JZ began liquidating their portfolio in Brooklyn. In 2020, Cushman & Wakefield listed RedSky and JZ’s 14 Miami Design District properties. JZ ultimately wrote down its Design District portfolio to zero dollars because of the high carrying costs and excessive supply in the area, according to JZ’s 2020 annual report.
By last year, Apollo had taken control of the JZ RedSky Design District property entity, according to Florida corporate records. It’s unclear how much of a stake Comras has in the development site.
According to RH’s complaint, “Monetary damages would be inadequate to compensate RH.” Still, it said it is seeking “tens of millions of dollars.”