Real Estate

Fifth Ave home to Juicy Couture, Godiva, tangled in master lease

A, 36-story office building at 650 Fifth Ave. that was developed when Iran was governed by its former Shah, became the subject of a forfeiture in Federal Court brought by the US government.

It is now allegedly owned by the Alavi Foundation and Assa Corp. with funds that deeds show came from the Shah of Iran in the 1970s. To protect the asset during the multi-year process, a federal monitor judge was appointed.

Retail specialist David A. Green of Cushman & Wakefield responded to a government RFP with the idea of unlocking the value of the retail space that was rented to three tenants paying under-market rents.

The building needed capital to build out the vacant office space for new tenants. To accomplish this, a new master lease was created for the retail that would make larger payments to the building while receiving the lower rents from the retailers.

This 49-year leasehold was marketed through an Oct. 2012 RFP to key players who could take on the long-term risk of owning something that could have negative cash flow for years.

The RFP was won by an SL Green Realty Corp. and Jeff Sutton venture, and they signed a letter of intent in January 2013.

The deal needed the approval of the Federal government, including the US Marshals Service, and a license from the Office of Foreign Asset Control, which came up as an issue during the government shutdown.

Additionally, as the building ownership was in litigation, it made title insurance an issue.

Meanwhile, the company that owned retail tenant Juicy Couture was selling the brand. SLG and Sutton paid $51 million to obtain and soon vacate the corner retail space at Fifth Avenue and W. 52nd Street that can be rented to a market-rate tenant and improve their own cash flow.

The 49-year master lease runs to Nov. 2062. It totals 32,000 square feet and covers the basement, ground, second and third floors that includes tenants Juicy (which will move out), Godiva and Devon & Blakely.