How $1.8B in New York Building Sales Came Together in a Few Weeks

By “massive bundle” we mean $1.8 billion on three properties — all closed within weeks of each other. This figure gets even closer to $2 billion if you factor in a fourth sale Sutton concluded in August.

In a market that spent so much of 2023 writhing and spluttering, it was the kind of 1-2-3 punch that left many insiders agog. For weeks after the the sales concluded it was all many a broker and landlord in New York could talk about. 

It sent a clear message to the industry that there is a future for mixed-use properties and that the retail components of those buildings could be an answer to distress. It was a heart-starting adrenaline shot to the retail market worthy of Quentin Tarantino.

It all began in August 2023 when Sutton and his partners, brothers David and Simon Reuben, sold the retail components of 747 Madison Avenue to the family office of vacuum mogul James Dyson for $135 million. CBRE (CBRE) had appraised the property low. The figure they arrived at was only what Wharton purchased the ground-floor retail spaces for back in 2011.

An appraisal so low should set off alarm bells, but instead a light apparently went off in Sutton’s head telling him that selling properties to those who would most likely be retail tenants would yield a much higher return than looking for a buyer in an office landlord. Retailers, after all, are doing relatively well and leasing more space compared to office tenants. 

Retail availability in 16 of Manhattan’s shopping corridors in the fourth quarter of 2023 decreased to 195 vacant spaces from 203, 12 percent below the fourth quarter of 2022, according to a report from CBRE. Meanwhile, the office availability rate in Manhattan rose quarterly 20 basis points in the last three months of 2023 and was up 80 basis points from the last quarter of 2022, according to a separate report from CBRE.

Dyson was a prime candidate to buy. The company had already bought 155 Mercer Street in March from Thor Equities for $60 million, double what the seller acquired it for. Sutton appears to have figured out that the vacuum commodore might be looking to suck up some more real estate. 

Sutton declined to comment for this article.

The Mercer Street building in SoHo had been previously leased by Dolce & Gabbana, while 747 Madison had been home to Versace. The $66 million appraisal value prompted the decision to sell the property in the first place, which The Real Deal reported in 2021.

But the next part of the deal might not have come off if not for one of Wharton’s other marquee tenants: Prada.

Prada has had its flagship store at Wharton’s 724 Fifth Avenue since the late 1990s. Sutton made a trip to Milan, Italy, in December to try to persuade them to buy, too. They agreed to an all-cash deal for $425 million.

An appraisal of the 12-story building placed its value between $385 million and $426 million, according to Prada.

It was less than three weeks between the handshake and the money hitting Sutton’s bank account, and negotiations wrapped in a single day, according to Eastdil Secured’s Will Silverman, who was Sutton’s broker on the deal with Gary Phillips. In the deal, Prada also bought 720 Fifth Avenue, plus an annex next door on East 56th Street, for $410 million. This annex was a property that Sutton managed to keep when he sold the Crown Building in 2019.

“The area in the immediate vicinity of the property has recently seen an influx of significant investments that have further improved the residential, hospitality and retail appeal,” Prada said in a statement at the time of the sale.

While in Milan, said Silverman, Sutton took a meeting with Kering, the company that owns Gucci, Balenciaga and Alexander McQueen. Within weeks after that initial meeting, this time in Paris, Kering and Wharton came to a deal for $963 million for another Wharton property – which could not have come at a better time. Sutton had been battling it out with New York Life Insurance Company, which had been trying to foreclose on the building, intensifying his efforts to refinance the $300 million loan.

Sutton and SL Green Realty, which owned 10 percent of 715-717 Fifth, had taken out two $150 million loans from New York Life and the Teachers Insurance and Annuity Association of America (TIAA) in 2012, according to The Real Deal. This was only a year after a deal had been struck with Dolce & Gabbana for more than 18,400 square feet in the building that was then valued at about $300 million.

Sutton was in a legal battle with New York Life, which, according to a report in TRD, had bought out TIAA’s stake in the mortgage. Sutton claimed that a $15 million late fee for the maturity default went against a provision of the loan. He also said it prevented the Reuben brothers from providing a replacement mortgage.

While SL Green was not a governing partner in the joint venture, the company was “orgasmic” when it heard about the price Sutton was able to get from the buyer, according to a source. It also closed in an unprecedented three and a half weeks.

That sale of 715-717 Fifth Avenue appeared to change the perception of New York’s commercial real estate in an era when much of it is being written off as hopelessly dated and prone to distress.

In the beginning of February, the Port Authority of New York and New Jersey unveiled its plan for the full redevelopment of the Port Authority Bus Terminal in Midtown. When asked why Port Authority would invest in retail or office under such depressed market conditions, the agency’s executive director, Rick Cotton, cited Sutton’s sales as providing a newfound confidence in the retail- and office-heavy concept.

“I would point out to everybody here that there was a sale a week ago on an office building — not a new office building, a standard-issue office building at 56th Street and Fifth Avenue — that sold for three times what the current real estate market predicted,” Cotton said during a Feb. 1 press conference.

Finally, the 717 Fifth sale even got the attention of former President Donald Trump, who congratulated Sutton for the deal that happened just next door to Trump Tower: “Great deal, Jeff!” 

Mark Hallum can be reached at mhallum@commercialobserver.com.