Thor’s “Gold Coast” retail condo short on revenues

Sitt’s pricey Madison Ave. property is in the red after biggest tenant backed out

Rendering of 680 Madison Avenue (inset: Joseph Sitt)
Rendering of 680 Madison Avenue (inset: Joseph Sitt)

Joseph Sitt’s big play on Madison Avenue hasn’t gone according to plan.

Sitt’s Thor Equities is looking to refinance the expensive retail condo it bought at 680 Madison Avenue in 2013 at the base of former Helmsley Carlton House. But the property is operating at a net loss after the biggest tenant stopped paying rent last year.

Thor’s $185 million loan on the property is maturing in August, but the 30,000-square-foot condo was operating at a net loss of $313,834 during the first quarter, according to a property report Trepp, which tracks the securitized mortgage.

“If the tenant left and he’s got a refi coming up, he’s in a bind,” said one source not connected to the property. “It’s not like you can’t get refinancing, but most lenders tend to be cash-flow financers; they’re not going to lend against projected cash flow.”

A representative for Thor, which has been actively shopping many of its prime commercial holdings, was not available for comment.

A refinancing now could lead to a lower valuation of its condo at 680 Madison. Sitt could try to secure a bridge loan to buy more time to stabilize the property before refinancing. But the loan maturation comes at a tough time for the retail market, as rents have cooled off after a big run up in prices.

“[Thor] was being very aggressive at ICSC. They were having a lot of meetings,” said Faith Hope Consolo, chair of the retail group at Douglas Elliman Commercial. “All the landlords are being user-friendly now. They’re all being more realistic.”

Thor paid $277 million in 2013 to buy the block-long retail condo on the Madison Avenue “Gold Coast” at the corner of 61st Street, across the street from Barneys and near high-street brands like Hermes, Alexander McQueen and Roberto Cavalli.

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Sitt’s firm beat out rival retail investor Vornado Realty Trust, which reportedly offered a $280 million bid before negotiations with sellers Extell Development and Angelo, Gordon & Co. crumbled.

The sellers had bought the Carlton House three years earlier for $170 million and began converting the rental apartments above to co-ops before selling off the valuable retail portion as a condo.

The deal was a risky play, though. For Thor, it was one of the most expensive properties the company ever bought, and its first on Madison Avenue, which saw rents plummet to $500 a square foot and vacancies rise during the recession.

Sitt was confident in the prestige of the location, however, and set out to sign two big leases. First, the Qatari high-fashion retailer Qela signed a lease for 6,230 square feet with 3,000 square feet on the ground floor. The Doha-based fashion line paid more than $2,000 per square foot, making it one of the priciest deals of the year.

Sitt then signed the Italian suit maker Brioni to 7,000 square feet in the spring of 2015.

But the Qela deal started to sour before the store even opened. By the summer, the company was shopping its space around on the sublease market, as The Real Deal originally reported. And in September Qela stopped making rent payments, according to a report by Trepp tracking the property’s $185 million securitized mortgage.

Thor terminated the lease in December, and has been drawing on the $12 million letter of credit Qela provide in order to cover the rent deficit.

According to the Trepp report on the property, Thor had pro forma-ed annual revenues of $12.2 million. But through the first three months of the year, revenues were just $2.08 million, which at an annualized rate brings the property about $4 million short of pro forma.

According to Trepp, the property is running at a debt-service coverage ratio of .2 percent, which is an indication of a loan’s poor financial health.

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