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Category ArchiveTiffany & Co.

Sterling Flips High-End Rodeo Drive Property in $110M Sale to LVMH

Sterling Organization, a private equity firm based in Palm Beach, Fla., doubled its money on the sale of a 7,634-square-foot parcel at 456 N. Rodeo Drive  in Beverly Hills. Sterling netted a cool $110 million for the property—which includes a 6,200-square-foot vacant single-story building and a 1,500-square-foot parking lot between Santa Monica Boulevard and Brighton Way—in the heart of the so-called “Golden Triangle,” one of the country’s most sought-after locations for luxury retail, according to an official release from Sterling. Last week’s sale came a mere day after Sterling closed its purchase of the property from The Karl B. Schurz Trust (Schurz Trust) for $55 million.

The purchaser of the property, a subsidiary of Paris-based, multinational conglomerate LVMH originally considered  leasing space at the property, but the company alternatively expressed an immediate interest in acquiring it. LVMH, which counts Louis Vuitton and Loewe among its portfolio of upscale brands, owns two other stores in the area at 319-323 North Rodeo Drive and 420 North Rodeo Drive, according to The Wall Street Journal, which broke the news of the sale.

LVMH declined to comment on the purchase.

Sterling’s acquisition of the property resulted from a highly structured off-market transaction, when it signed a 30-year ground lease with rights to purchase on Oct. 26, 2017.

Last week’s sale transferred the 456 N. Rodeo Drive  property to the luxury goods behemoth for approximately $17,750 per square foot.

Retail agent Robert Cohen, a vice chairman at RKF in Los Angeles, commenting on the deal, said the move for LVMH was a “very smart move” and part of an overall trend of European retailers investing in brick-and-mortar real estate in top U.S. shopping districts.

“This is a trend we’ve seen more and more of, which is personified on Rodeo Drive for several reasons, the least of which is that it’s only three-blocks long, an easy market and low-density. These retailers don’t have to worry about offices, residential or hotels, which is more difficult,” he said.

“Rents have gone up historically. It’s held its value. Europeans are very smart because they have not only the ability but they understand buying is better long-term than leasing. You control your own destiny.” (This is a trend that WSJ recently noted in Manhattan.)

Cohen pointed out that while $17,000-plus a square foot is high considering the comparables, over time, it works out to make good business sense. Average asking rents per per square foot on Rodeo Drive ranges from $600 to $1,000, Cohen said, so, say, over 20 years, the price paid averages $850 per foot. “You’re at the middle of the market, but now you own the property. Not only are you not paying rent, but you have an asset that is increasing in value,” he said.

Indeed. Rents on this stretch of Rodeo Drive, home to luxury retailers including Hermes, Chanel, Celine, Tiffany & Co. and Givenchy, rank among the highest in the nation. Retail rents on Rodeo Drive were $875 per square foot in 2017, according to statistics from Cushman & Wakefield’s 2017 year-end Los Angeles retail report, making the locale the second-highest in the nation. (Upper Fifth Avenue—49th Street to 60th Streets—in New York City still dominates, the C&W data indicate, closing 2017 at $2,982 per square foot.)

Negotiations for 456 N. Rodeo Drive began in July 2017 between Jonathan Mendis, Sterling’s senior vice president of investments for the Western United States, Brian Kosoy, Sterling’s president and CEO, and the trustee for Schurz Trust. The months of negotiations culminated in the October 2017 ground lease execution and purchase of the fee interest.

“When a circumstance presents itself to acquire a Rodeo Drive property, you aggressively pursue it, regardless of the complications involved in getting a deal done,” Kosoy said in prepare remarks. “This was a win-win-win for all three parties involved with each securing what they desired. The deal round-tripped a lot faster than we projected, and we are extremely pleased with the exceptional financial results we were able to provide to our investor partners.”

Kosoy told Commercial Observer his firm flipped the property because it felt it was in the best interest of its investor partners.

“Part of the opportunity in the commercial real estate sector pertaining to retail is that the passive observer, analysts, as well as much of the media, seem to repeatedly throw the baby out with the bathwater,” Kosoy said. “There are many areas that are immune to the woes of retailers today and Rodeo Drive is one of them. Great retail real estate is not under assault as many believe.”

He foresees Rodeo Drive real estate going in only one direction value wise: higher. “Continued limited and static supply and high demand assures such,” Kosoy said.

Cohen concurred, calling Sterling’s flip, “a brilliant play.”

“It’s an amazing story,” he added. “From a real estate perspective, they tied this up to a ground lease with an option to purchase, obviously purchased, it and to turn this around in a day and sell it, to basically double your money— that shows how voracious an appetite some of these people— these retailers have for real estate.”

Source: commercial

Stat of the Week: 40.3 Percent

As retail real estate professionals gather at this year’s ICSC (International Conference of Shopping Centers) RECon in Las Vegas, there is bound to be discussion about the question on everyone’s mind:

Is retail dying?

The answer is simple: Absolutely not—it’s just evolving.

Regardless if one’s shopping is done in store, online or both, there will always be a retail store presence. As a father who purchases video games for my two sons, I have found myself in five stores over the past two months purchasing the latest releases, as well as ordering an older, hard-to-find game online. 

The decline in asking rents and increase in availabilities for New York City storefronts over the past year appear more drastic than they really are. Although asking rents are down year-over-year in nine of the 11 statistical submarkets tracked by Cushman & Wakefield, asking rents are up significantly from five years ago. Combined, asking rents for these submarkets are down 5.1 percent from one year ago but remain 40.3 percent higher than in 2012. The five-year growth rate for Manhattan office asking rents has not been as extreme, because it’s only gone up 23.2 percent. 

Despite the decline in retail rents around Manhattan, tourism throughout the city continues to grow, surpassing 60 million visitors for the first time on record. With 60.7 million tourists flocking to New York City in 2016, visitors have increased by 15.2 percent since 2012. One area that seems to benefit from the increase in tourism is Fifth Avenue, as tourists covet shopping along the corridor from 42nd to 60th Streets, seeking retail destinations like the Apple store, Rockefeller Center, St. Patrick’s Cathedral and Trump Tower’s Tiffany & Co. It has become a mecca for midlevel soft goods shopping for athleisure wear—like Nike and Under Armour—compared to the luxury stores that once lined Fifth Avenue, which now consider Madison Avenue as an alternative.

The increased foot traffic along Fifth Avenue has helped the Upper Fifth Avenue corridor (49th to 60th streets), as direct average asking rents for ground floor space are up 9.7 percent year-over-year through the first quarter to $3,188 per square foot. This retail corridor is also one of only three submarkets that had a drop in vacancy since the third quarter of 2016, with direct vacancy down from a recent high of 13 percent to 10.2 percent during the first quarter of 2017.


Source: commercial