Jeff Sutton on the deals that launched his multi-billion dollar empire

Jeff Sutton’s vast real estate empire started with cameras.

Sutton, now known as the King of Retail, went to work for his father’s camera company after graduating from college. But when the camera market fizzled, the family lost its business.

They were forced to sell a warehouse, which they had bought a few years earlier for $1.5 million with $150,000 cash and a mortgage. The Suttons sold the property for $2.8 million, and a lightbulb went off.

“I said, Wow, all this work we do to make cameras in Taiwan and bring them to New York… I put up 150 grand and two or three years went by and it became one million five,” Sutton recalled. “So I said, maybe real estate’s a good business to go into.”

Fast forward to today, and Sutton is one of the most successful real estate investors in the country, with a net worth estimated by Forbes at $2.7 billion. He recently sold a handful of Fifth Avenue properties to Prada and Gucci for about $1.8 billion.

The publicity-shy billionaire gave a rare interview Thursday at New York University Stern’s Chen Institute retail forum, where he and host Sam Chandan discussed some of the turning points in his career.

After the family business went under, Sutton went to work for two Garment District entrepreneurs, who wanted him to start a real estate business for them. With no money and no name recognition, he realized he needed a competitive edge.

His idea: Sutton would approach brokers selling buildings, who normally earn a 3 percent commission. He offered to pay them 6 percent if they would agree not to call anyone else about the property for 24 hours.

“It sounded stupid, but it was brilliant, because for a day [the broker] was going to make two deals instead of one,” Sutton explained. “All I needed was a day. I said to myself, for sure I’m going to save 3 percent if no one’s bidding against me on a building.”

The biggest impediment to buying a property, Sutton realized, was competition from others that drove the price up. He was essentially engineering off-market opportunities for himself. That led to more deals.

“I was getting calls from everyone, because who doesn’t want to make a double commission?” he said.

Sutton shared some stories that have become industry legend, such as how a chance encounter with a Payless Shoes executive led to his first acquisition, and how with CVS he perfected his strategy of signing tenants to leases at buildings he didn’t yet own, and then using those leases to finance the acquisitions (you can read about them here and here).

“I know it sounds crazy, but for like four years I was literally going to closings to buy buildings and I’d walk in with a deposit slip,” he said. “I would come out with the deed and a wire to me because I knew I was borrowing more money than the guy wanted to sell the building for.”

Sutton said that when he decided to get into real estate, he chose retail because the supply of storefronts was inherently limited compared to, say, offices which could be built higher and bigger.

He pointed to the prime stretch of Fifth Avenue between East 57th and East 56th streets. Those eight corners are some of the most coveted retail real estate in the world. 

Before he sold his properties, four of those corners had been owned by tenants and two were under long-term leases.

“I owned the other two, so if a guy wants a corner on Fifth Avenue, he’s got to come to me,” Sutton said.

On his deals with Prada and Gucci: “I had gone to Milan to meet one of the guys who wanted to buy both corners. But he played around a little before I got there and so before I got to his meeting in Milan I already made a deal with Prada. I shook his hand, and then when I got to the next guy I said there’s only one corner left.”

Sutton’s known for his creative approach to dealmaking. Once, he was approached by the late Sam Zell, whose Equity Office Properties was buying the office building at 717 Fifth Avenue. Zell wasn’t interested in owning the ground-floor retail, so he called Sutton up and named his price.

Sutton couldn’t initially get the math to work but he eventually came up with a solution: He could meet Zell’s price if they would split up the building’s tax bill by the square footage they owned. Sutton would pay 25 percent and EOP the remaining 75 percent. Because the retail is more valuable than the office, Zell was essentially subsidizing Sutton’s taxes. 

The retail mogul also shared an anecdote about a meeting with boxing legend Floyd Mayweather Jr.

The two happened to be at a New York Knicks game one night, and the crowd was going wild for Mayweather, who had just signed a $300 million contract for six fights. 

Sutton, who didn’t know who Mayweather was, turned to him and asked why everyone was so excited.

“He said, ‘I’m Floyd Mayweather,’ and I go, ‘And?’”

When Mayweather explained the significance of his contract, Sutton shared his thoughts.

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“You know at the end of the day, Floyd, you’re really a dentist. A dentist only makes money when he’s drilling a tooth. You only make money when you’re boxing,” Sutton recalled. “So he says, What do you do? And I said, I thought you’d never ask.”

Sutton explained his business and how he earns income each month on 20-year leases. Mayweather came by his office one day to check out some of his properties and the two became friendly.

One night in Las Vegas the two were on their way inside the XS Nightclub when the paparazzi spotted Mayweather, who was excited to talk about his new business venture. 

“I’m not a dentist! I’m gonna make money in my sleep!” he yelled. “I’m gonna buy real estate with this guy right here!”