Sutton’s Place: The Behind-the-Scenes Negotiations That Led to Jeff Sutton’s Blockbuster 1552 Broadway Acquisition
By Daniel Geiger July 24, 2012 7:00 am
reprintsAs Mr. Sutton and SL Green (SLG) arranged to buy 1552 Broadway, they simultaneously struck a deal to lease about 40,000 square feet in 1560 Broadway, the bulk of the building’s retail space and the second- and third-story office floors, which Mr. Sutton would convert into retail space. Part of the retail space in 1560 Broadway is leased by McDonald’s, but the deal allowed at least 30,000 square feet to be tacked onto 1552 Broadway’s footprint.
According to city records, the partnership took out $94.4 million in financing to pay for the purchase of 1552 Broadway and a pair of loans—one $12.1 million, the other $18.5 million—to help cover the leasehold of 1560 Broadway’s retail as well as construction costs. The mortgage for 1552 Broadway indicates that Mr. Sutton and SL Green were borrowing at about 70 percent the value of the property. If they were using similar leverage levels in the other loans, it would suggest the group paid about $44 million in total to lease 1560 Broadway’s retail space and integrate the two structures as well as other capital expenses, such as updating the large signs above 1552 Broadway and converting them into digital displays.
Having invested at least $180.5 million, the partnership began to focus on the delicate task of locating a tenant willing to do a deal that would make their huge investment worth all the risk so far.
Scoring Express
Mr. Sutton is credited with having deep relationships with major retail tenants and a track record of wooing them into big deals.
“Jeff is very connected to the tenants and understands the market for a space and what retailers want,” Mr. Steinwurtzel said.
Few doubted he would be able to start conversations with stores, especially considering how many household names—retailers such as Forever 21, Walgreens, Swatch and Mac—have made their way into the heart of Times Square in recent years.
For almost a year, however, the space at 1552 Broadway sat quiet. But like other retail experts in the city, Mr. Sutton noticed that Express, a clothing and apparel store seeking to regain a foothold in the ultra-competitive discount fashion category, began to stall in negotiations involving a deal at 4 Times Square. According to people who declined to be identified for fear of betraying confidences, Mr. Sutton swooped in with a simple pitch: 4 Times Square was on the outer edge of Times Square, while 1552 Broadway was in the heart of the bow tie, a location impossible for passersby to miss and smack in the center of an area that billions of television viewers see each year during coverage of New Years Eve.
Express was quickly convinced and in May announced it was in the process of a major deal in Times Square. By June, a 30,000-square-foot lease was hammered out and signed at 1552 Broadway in what will likely be a front runner for next year’s REBNY retail deal of the year. The transaction is one of the richest retail deals ever done in the city, according to brokers with knowledge of its terms. Express will pay about $23 million a year for the space as well as rights to digital signs that will be installed above the building. The deal means that Mr. Sutton and SL Green could earn between eight percent to as much as 14 percent on their investment, depending on the structure, which is not public, of the Express lease alone.
Added Value
The Express deal likely won’t be the only revenue-producing lease that gets done at 1552 Broadway and 1560 Broadway.
In June, Mr. Sutton and SL Green entered into an agreement to buy 155 West 46th Street, a small building that abuts 1560 Broadway on the side street, for a little more than $8 million.
The plan, according to sources, is to relocate lobby space in 1560 Broadway that services its office floors above to 155 West 46th Street, allowing more of the building’s valuable Broadway frontage to be converted to retail. Mr. Sutton may also have plans to buy out McDonald’s to try to clear more room for another blockbuster deal.
dgeiger@observer.com
