Sutton’s Place: The Behind-the-Scenes Negotiations That Led to Jeff Sutton’s Blockbuster 1552 Broadway Acquisition

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According to retail brokers, Mr. Sutton helped establish the new paradigm of dealmaking in the area when he brought American Eagle Outfitters to 1515 Broadway, a lease believed to be worth $20 million a year and which brokers have said works out to one of the highest rents ever paid on a per-square-foot basis.

One critical element of the transaction was that American Eagle would receive about 14,500 square feet of total electronic signage in various locations on the building—billboards it could use not only to display its own brand but on which it could sell airtime to other advertisers in order to generate proceeds that would help lower the cost of its exorbitant rent.

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“American Eagle might sell 10 to 15 minutes of every hour through a third-party manager,” Mr. Smith said. “We can’t know the specific offset, but it’s significant—it can be 20 to as much as 50 percent of your rent. But the sign business is also so fickle. One day you’re selling ad space like crazy, and the next it’s like you can’t get anything.”

 1552 Broadway

To complete the deal at 1552 Broadway, Mr. Sutton drew on components from both his American Eagle leases.

He didn’t have any tenants in hand when he purchased the property last summer. It was safe to assume, however, that no deal for the building’s space or signage alone could be valuable enough to justify its eventual price. So as he and SL Green (SLG) negotiated with the brokers who were selling 1552 Broadway, a team from the services firm Jones Lang LaSalle, Mr. Sutton also began talks with the owners of 1552 Broadway’s neighbor, 1560 Broadway. 1560 Broadway is a 225,000-square-foot office building that wraps around 1552 Broadway, which is on the corner of 46th Street, a high level of adjacency that Mr. Sutton could see offered ample options to reconfigure and expand 1552 Broadway’s space.

“He saw he could create a huge piece of retail space in the heart of Times Square,” said Jeff Gural, a top executive at Newmark (NMRK) Grubb Knight Frank, which owns a leasehold interest in 1560 Broadway.

Mr. Gural said Mr. Sutton was the only bidder on 1552 Broadway who approached him to strike a deal to reach into 1560 Broadway’s retail, which is likely one of the reasons Mr. Sutton and SL Green were able to find a way to pay a higher price for it than any other potential buyer.

Taking 1560 Broadway’s space allowed Mr. Sutton to execute an increasingly common retail investment strategy in the city: lease out 1552 Broadway’s ground floor at exorbitant rents by partitioning it into several storefronts that act as entrances to the bulk of the retail space upstairs, a formula used to milk value out of other high-profile retail locations in the city, such as 666 Fifth Avenue. [Jared Kushner, president of Kushner Companies, which owns 666 Fifth Avenue, also owns The Commercial Observer.]

“He unlocked a ton of value in the 1552 Broadway space by connecting it with our building,” said Brian Steinwurtzel, an executive at Newmark who was involved in negotiating the deal on behalf of Mr. Gural. “And he will benefit from the upside of taking that risk.”