Daily Dirt: Fifth Avenue retail landlords face falling rents

Fifth Avenue retail was riding high for much of last year. But things may not be quite as rosy as they seem for some landlords on the historic shopping strip. 

Just a few months ago, optimism was abundant when it came to Fifth Avenue retail. Jeff Sutton traded three properties for nearly $1.8 billion as luxury brands moved to lock down space along the corridor’s finite sidewalks. 

In November, Cushman & Wakefield reported that upper Fifth Avenue (from 49th to 60th streets) had retained its “top ranking as the world’s most expensive retail destination.” It said average rents on the street hit $2,000 per square foot per year. Meanwhile, top shopping districts in Paris, London, Hong Kong and Milan saw their average rent top out at $1,766 per foot. 

However, recent developments suggest a different narrative unfolding beneath the surface. 

The revelation came about thanks to none other than Kim Kardashian. The multihyphenate’s shapewear brand Skims leased 20,000 square feet at Oxford Properties and Crown Acquisitions’ 647 Fifth Avenue. While the exact rent isn’t known, reports place it at less than $200 per foot. 

Skims was able to command such a bargain because the tower’s other retail occupants — Armani Exchange, H. Stern and Furla — have either left or shared plans to exit, Crain’s reported. 

But a recent lawsuit by a handful of Midtown retail landlords shows that 647 Fifth isn’t the only property facing declining rental incomes.

At Vornado’s 697 Fifth Avenue, the luxury jeweler Harry Winston slashed its footprint last year, giving up three floors. That cut Vornado’s income from the space to about $6 million, down from $22 million. 

647 Fifth Avenue was also part of the lawsuit, which revolves around the city’s odd — and potentially illegal — decision to base tax assessments on outdated income numbers. 

The lawsuit argued that assessments should be based on “market rents, and not unattainable pre-Covid rents.” 

“The mortgage is coming due in 2024 and this property is likely to be another newspaper headline ‘deed-in-lieu of foreclosure,’” attorney Jeremy Friedman wrote in an email to the city’s Department of Finance. 

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What we’re thinking about: Is something amiss on Fifth Avenue? Or is this a case of a few landlords facing unique struggles? Send a note to david.westenhaver@therealdeal.com.

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Worth noting: The emailed version of last Friday’s Daily Dirt inaccurately associated three buildings with the Chetrit Group. The article has been updated to better differentiate between Chetrit Organization and Chetrit Group properties.

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Closing Time

Residential: The priciest sale on Friday was $12 million for a 3,800-square-foot condominium at 385 West 12th Street, Unit PHW, in the West Village.

Commercial: The most expensive commercial sale of the day was a mixed-use building for $8.8 million at 25 West Houston Street in Soho.

New to the Market 

The highest price for a residential property hitting the market was an $85 million, 19,600-square-foot townhouse at 48-50 West 69th Street on the Upper West Side. The St. André Team at Compass has the listing.

— Joseph Jungermann

A thing we’ve learned: Have you ever felt like a person in a photo or painting was watching you? That’s called the Mona Lisa Effect, the optical illusion that occurs when the eyes of a person in an image appear to follow the viewer as they move.

Elsewhere in New York

— The AI-powered MyCity Chatbot was supposed to provide New Yorkers with simple answers to their questions around running a business in the city. But the chatbot has been found to give faulty, and sometimes illegal, advice, The City reported. In one instance, it implied that landlords can discriminate based on source of income. 

— Mayor Eric Adams announced that the city would begin testing a new gun detection system at subway stations, the New York Times reported. The news came on the heels of a deadly altercation at an East Harlem stop earlier this week, when one man shoved another onto the tracks.