Leonard Stern’s Hartz Mountain Industries gave Michael Kors the deal of a lifetime: more space without raising the retailer’s effective rent.
Michael Kors is set to double its footprint at 667 Madison Avenue to 11,000 square feet, Crain’s reported. The Plaza District lease took effect in August and lasts through 2034, according to a report from credit rating agency KBRA.
The company was previously paying $862 per square foot, but the new deal marks a 49 percent decrease to $438 per square foot.
The retail picture has shifted against the landlord at 667 Madison in recent years. Since 2016, the retail rents Hartz Mountain commands at the building have declined by 36 percent, S&P Global reported in August. Occupancy is expected to hit 84 percent by year’s end, but net cash flow, which declined 64 percent last year, isn’t expected to return to historical levels.
As a result, KBRA downgraded a AAA security holding the building’s mortgage, pointing to the Michael Kors deal as a reason for marking the mortgage a “loan of concern.” Loews Corp. recently left the building, though office rents have only declined 4 percent since 2016, according to S&P.
Another concern in the offing for Hartz Mountain is a $254 million loan coming due in two years. Deutsche Bank provided financing for the developer’s signature property in 2016, replacing a $250 million mortgage provided by Goldman Sachs a decade earlier.
Hartz Mountain chief Leonard Stern, who has a net worth forecast to be in the billions, told the outlet he will pay off the loan and continue owning the 25-story, 265,000-square-foot building if he can’t refinance the property when the mortgage matures.
Between East 57th Street and East 72nd Street on Madison Avenue, the retail availability rate in the third quarter was 14 percent, according to Cushman & Wakefield, down from 19 percent a year earlier.
Hartz Mountain, which counts 38 million square feet in its portfolio, recently walked away from a project set to deliver 2 million square feet of warehouse space to Roxbury Township, a New Jersey municipality roughly an hour outside of the Lincoln Tunnel.
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