More Retailers Are Snapping Up Buildings And Taking On An Unfamiliar Role: Landlord

Last year, Avi Hiaeve scooped up the former Playboy Club out of foreclosure, with plans to turn the building into the headquarters for his luxury jewelry company, Avi & Co.

His acquisition was part of a string of purchases by tenants-turned-owner-occupiers as retail rents picked up alongside a supply of investment deals. Now, some of those retailers are navigating their way into the new position of becoming a landlord.

Although Avi & Co. is occupying parts of the former nightclub at 5 E. 59th St., Hiaeve recently hired a brokerage team to lease out a large chunk of the building. That includes the ground floor and sections of the upper floors.

“Given the current value and demand for retail space in the area, we’ve decided to lease out the highly sought after premier ground and second floor spaces to other luxury retailers,” Hiaeve said in a statement. 

At least 14 major real estate purchases by retailers occurred in 2023 and 2024, according to data provided by JLL and Cushman & Wakefield. Most of the acquisition targets were in Manhattan’s prime shopping corridors, including Fifth Avenue, Madison Avenue and SoHo. 

The trend has come as retail rents have skyrocketed while office values plummet — and it is expected to continue as long as those factors do.  

As of the end of 2024, retail availability in Manhattan was at a 10-year low, with the figure for premier retail strips dropping to 13.9%, down from the pandemic peak of 27.8% in 2021. Asking rents exceeded $2,300 per SF per year on Fifth Avenue, $1,500 in the Times Square Bow Tie and $900 on Madison Avenue, according to Cushman & Wakefield data. 

Meanwhile, many office tenants that typically occupied the upper floors of such buildings have either transitioned to remote work or migrated to Class-A space, much of which is concentrated in areas like Hudson Yards and individual buildings such as The Spiral.

“Especially in the case of Office properties, there's an expectation on [the buyers'] part that by occupying that space with their own luxury retail presence, they can then charge a premium to office tenants or other retail tenants,” said Tanner Cain, research manager for investment sales and retail at Cushman & Wakefield. “And they're probably correct.”

But in exchange for locking down long-term security for themselves, having control over the asset and monetizing the space by leasing to others, retailers are still paying huge sums, with several of the sales among the largest of the past year.

Haddad Brands wrapped 2024 with the $360M purchase of 2 Park Ave., where it will occupy just a fraction of the 1M SF property, making the clothing manufacturer an office owner.

Kering, the parent company of Gucci and Balenciaga, dropped nearly $1B on a 115K SF retail condominium at 717 Fifth Ave., then owned by Jeff Sutton, to start the year. Sutton also raked in more than $820M from Prada, which bought 720 and 724 Fifth Ave. nearby.

In November, Landry's CEO Tilman Fertitta bought 72 W. 36th St., the historic home of Keens Steakhouse, for $30M. Landry's owns and operates a plethora of steakhouse brands. In buying the Midtown real estate, the company said it is preserving another.

Owner-occupier transactions rose 36% in 2024 as of the end of the third quarter, Newmark said in its announcement of the 2 Park Ave. sale.

But owner-occupier deals are starting to pop up outside of pricey shopping districts, especially as there is an uptick in distress, which allows new players to step in.

“I would say at least 40% to 50% of the listings that I've gotten in the last two years are properties that are about to be foreclosed on, they defaulted on their mortgage, they have a balloon payment coming up that they're not going to be able to make,” Serhant Commercial Managing Director Bernadette Brennan said. “But if we're able to find an owner-user, then we're able to get more than if we were to just find an investor. And in a couple of those situations, we have created some big records in the neighborhood.”

Brennan is part of the leasing team for Hiaeve’s 5 E. 59th St. She also sold 589 11th Ave., where the new owner plans to develop a restaurant at the office building’s base. 

“They're not looking at it the same way [as an investor], because they're looking for what they need for their business,” she added.

But those deals aren’t always the easiest, Brennan and other brokers said. 

Obtaining a loan for the purchase of an office property is already difficult. It doesn’t help that these are often first-time investments for the occupiers.  

One business that Brennan has worked with was turned down by four different lenders before it managed to secure a loan. The issue was that the unnamed borrower operates mainly in cash, making it difficult for it to provide meaningful records.

It is a difficulty among large retailers, too, although they have more ways to get nontraditional financing, such as through bond offerings. 

Still, that has limited the number of owner-occupier transactions, JLL Vice Chairman of Retail Brokerage Patrick Smith said.

“Most retailers just don't have the capital,” Smith said. “Let's say you buy a property in New York for a couple hundred million dollars. How many stores can you actually build, open, operate and stock with a couple hundred million?”

And the costs of build-out, operations and inventory remain, in addition to the new costs of maintaining the space for the owner-occupier and others. 

Brennan said some smaller owner-operators will hire the sellers’ property managers, while others will transition to managing the buildings themselves.

Either way, she said there is often a learning curve.

In the case of Prada, JLL has been hired to advise as well as operate the building. 

“This is not their business,” Smith said. “They're going to use somebody else to do it.”