Fifth Avenue’s New Anchor
The wall Street Journal 12/5/2011
By CRAIG KARMIN
Thor Equities is planning to build a new retail, hotel and residential complex in midtown, giving fresh momentum to a stretch of Fifth Avenue already making strides toward becoming a fashionable new shopping destination.
The development and management company, already a major investor in Manhattan retail property, has agreed to acquire three connected buildings at 516 to 520 Fifth Avenue and 43rd street from developer RFR for an undisclosed price.
Thor plans to raze the properties and erect a glass box structure that will be the retail base for a 350,000 square foot building. Joseph Sitt, chief executive officer, said the firm is already in discussions with hotel companies and residential developers to team up with Thor or buy pieces of the project.
Hurdles still remain, including Mr. Sitt’s need to raise financing for the development which could cost around $250 million, according to industry estimates. Construction loans have been hard to come by in today’s weak economy.
But Mr. Sitt, a Brooklyn-born developer, has been on a roll lately, buying the Palmer House Hilton Hotel in Chicago and top retail properties in London, Mexico City and New York. He’s also a major player in the outer boroughs with investments in Coney Island and a proposed big-box retail project near Gravesend Bay.
Separately, Mr. Sitt said he also has signed a contract to acquire a building at 445 Fifth Ave., near 39th Street. Thor already is talking to retailers to move in when the existing lease expires in two years, Mr. Sitt said.
Thor is making a big bet that the world’s big-name stores and high-priced rents will continue to drift south on Fifth Avenue. For years, the hottest addresses have been between 49th and 59th streets, the home of stores such as Tiffany and Saks Fifth Avenue. Average asking rents along this strip have soared about 50% since 2008 to around peak levels of about $2,100 a square foot, putting it among the world’s most expensive shopping districts.
But until recently, shopping south of 49th Street on Fifth Avenue was more downscale. The street was dotted with discount stores, souvenir shops and electronics kiosks, as well as a number of locations that stayed vacant for years.
That began to change about three years ago as bigger landlords such as Vornado Realty Trust and RFR acquired buildings and leased their retail spaces to national and foreign brand names, like Zara.
This year five retailers, including Guess, Joe Fresh and Tommy Bahama, opened stores on the strip of Fifth below 49th street. British clothier Ted Baker plans to open a store next year, moving into a spot that was a Sprint outlet.
Mr. Sitt hopes the trend will continue and even extend south of 42nd Street, which gets much less foot traffic. He believes he can attract traditional Fifth Avenue shoppers as well as the crowds that frequent the area around the Empire State Building at 34th street.
“We’re seeing a dramatic shift on Fifth Avenue down to 42nd street,” Mr. Sitt says. “And we expect it will expand further, stretching like a rubber band down Fifth to the mid 30s.”
One attraction: lower rents. They run around $600 to $800 a foot on Fifth Avenue in the 40s, but $350 to $400 a foot below 40th Street, says Faith Hope Consolo, head of Prudential Douglas Elliman’s retail group.
“This will appeal to retailers that want a Fifth Avenue address but don’t want to pay upper Fifth prices,” Ms. Consolo says.
Other investors also are being drawn to Fifth Avenue south of 49th St. Hotels such as Cassa, Setai Fifth Avenue and Andaz opened recently in the area.
In October, Jamestown Properties and Rockwood Capital joined Murray Hill Properties and Crown Acquisitions in agreeing to buy 530 Fifth Avenue, at 45th Street, for $200 million in equity and assuming $220 million in debt.
Where upper Fifth is marked by upscale retailers with elegant displays, “it’s more of a youth market on this stretch of Fifth,” says Ms. Consolo, referring to the strip south of 49th Street. “It’s closer to a mall type of tenant.”
For Thor Equities, the recent deals further solidify its status as a major player on the avenue. Mr. Sitt owns or has agreed to acquire eight addresses on Fifth, which he says is more than any other operator. He added that he is negotiations to acquire another Fifth Avenue property.
All but one of these properties are below 49th street. Last year Thor acquired the trophy Takashimaya building between 54th and 55th streets on Fifth after submitting a winning $142 million bid. Forever 21, the Los Angeles-based apparel retailer, signed a short-term lease for the space last fall.
Mr. Sitt said the Forever 21 lease ends in the spring and that he is talks with another possible tenant for the space. While he has spoken with several candidates, brokers say the building’s confined ground floor and other eccentricities may have discouraged some potential tenants.