Ikea Buys Real Estate on Fifth Avenue for Small-Format Store
A franchisee of the Swedish furniture retailer invested between $300M and $500M in 570 Fifth Avenue
By Abigail Nehring July 1, 2024 5:33 pm
reprints
Ikea tried, and failed, twice to launch a small-format store in New York City. But now it’s hoping the third time’s the charm and this time placed its bets on tony Fifth Avenue.
Ingka Group, the largest Ikea franchisee in the world, struck a deal with Extell Development for a one-third stake in a new 1 million-square-foot office tower set to open in 2028 at 570 Fifth Avenue, the firms announced Monday.
Extell and Ingka declined to disclose the size of Inka’s investment, but a source with knowledge of the deal said Ingka spent between $300 million and $500 million for the stake.
The deal was brokered by Eastdil Secured’s Gary Phillips and Will Silverman, who declined to comment.
The Swedish holding company will become a preferred equity partner in the property and will own an 80,000-square-foot retail space at the bottom, where it plans to open an Ikea store, according to Ingka.
That’s a lot smaller than the 6.5-acre outpost Ikea opened in Red Hook, Brooklyn, in 2008 and the typical 400,000-square-foot warehouses it has set up across the world.
But in recent years Ikea has looked to get a foothold in city centers and experimented with more compact stores, which sell only small items and larger furniture pieces available for delivery. However, Ikea’s New York City efforts haven’t gone so well.
Its 17,530-square-foot outpost on the Upper East Side had a brief run before closing in 2021 while its 115,000-square-foot location at the Rego Center shopping mall in Queens lasted only three years.
The small-format concept has apparently worked better for Ikea on other continents. In the past five years, Ikea rolled out new small locations in city centers across Europe and Asia, including stores in Tokyo, Madrid, Paris and London. And it isn’t giving up on the United States.
Ingka plans to drop $2.19 billion to open 17 new U.S. locations by 2026 and has been buying up struggling malls across the country to breathe new life into them.
Now the company is taking a page from the luxury retail playbook in New York. Just like Gucci and Prada, it will own a piece of real estate on Fifth Avenue.
The Fifth Avenue development is part of a strategic effort to “bring Ikea closer to people in city centers,” the company’s U.S. CEO, Javier Quiñones, said in a statement.
“While we are in the very early stages of planning for the Ikea location, we can promise to deliver an experience that is full of inspiration and designed to meet the home furnishing dreams of the many New Yorkers,” Quiñones said.
Extell bought the development sites at 570 and 574 Fifth Avenue from SL Green Realty in 2015 for $125.4 million, and various new developments have been rumored for the site since.
“We have been working on assembling this project for almost two decades,” Extell founder and chairman Gary Barnett said in a statement. “Ingka Investments’ substantial commitment allows us to move forward with the construction and leasing of the best new office building in New York.”
The lot at the corner of Fifth Avenue and West 46th Street is currently vacant and Extell filed a zoning change with the city to build a 78-story tower there in 2021, city records show. The change never got full approval from the city, and it’s unclear if Extell will tweak the proposals for the development.
Korean financial services firm Meritz Securities and Korean asset manager IGIS provided financing for the development, according to Extell and Ingka, which did not provide more information about the financing.
Spokespeople for Meritz and IGIS did not respond to requests for comment.
Abigail Nehring can be reached at anehring@commercialobserver.com.
