Prada is giving up a life of leasing on Fifth Avenue and bought the building that houses its flagship there for $425 million.
The luxury brand, which rented the space since 1997, said the cash deal with 724 Fifth Fee Owner LLC was completed on Tuesday and funded through internal resources.
The building sits directly across from the Trump Tower between 56th and 57th Streets and ranks as some of the most prominent retail real estate in the world.
But before buyer and seller signed on the dotted line, they spent more than three years battling each other in New York State Supreme Court, where Prada sued 724 Fifth Fee Owner, Wharton Properties LLC and their manager, Jeff Sutton, in December 2019.
In a sworn deposition filed in the case, Sutton maintained that his company exercised its right under Prada’s lease to redevelop the building, which would have closed down the Prada store by March 12, 2020, and moved it to a nearby space in the adjacent Crown Building starting in January 2021.
Rent at the Crown space would have been $10.5 million a year, less than half the more than $22 million Prada said it was paying at 724 Fifth.
But Sutton said Prada “suddenly and unexpectedly breached its commitment to lease the Crown space” in October 2019 and said it would be moving out that following March.
The owner withdrew the “suspension notice” it had given under terms of the lease in order to do the work.
But Prada filed suit on Christmas Eve arguing that Sutton could not withdraw the suspension.
The suit also included a little New York real estate color.
“Mr. Sutton’s zeal to cause Prada to yield to his position led him to take additional inappropriate and damaging acts,” Prada’s complaint alleged. “Obtrusive and ugly scaffolding had previously been erected on the immediately adjacent building, which is also owned or controlled by an affiliate of Mr. Sutton and Wharton Properties.
“This scaffolding extended directly in front of Prada’s store — for which Prada pays owner over $22 million in annual rent,” Prada said. “Although the scaffolding had been required to facilitate certain façade inspection and safety work, by October 2019 all such work had been completed, and the scaffolding was ready to be removed. Mr. Sutton recognized that the scaffolding was unappealing to pedestrians, and extremely harmful to Prada’s business. When the dispute between the parties regarding the suspension option became apparent, Mr. Sutton refused to remove the scaffolding in an improper effort to gain leverage over Prada. The scaffolding remains in front of Prada’s storefront, serving no purpose whatsoever other than to harass Prada and harm its business through the important Holiday season.”
A judge ultimately ruled that the owner could not revoke its suspension notice and may be liable for Prada’s damages, but that the brand did not have the right to compel Sutton to redevelop the business or a $5 million payment it would have been entitled to had the redevelopment occurred and the brand been displaced. The matter of the scaffolding was still up in the air and the case was ultimately settled in January of this year.
Altogether the building has 12 floors above ground and a total of 78,765 square feet, including more than 68,491 square feet of rentable space.
Prada said the building was appraised at $385 million to $426 million this month, a valuation that took into consideration the location, the New York property market and the terms of its existing lease for the retail space.
The brand said its board “believes that the property’s location offers high strategic value being characterised by increasing scarcity and long-term potential; furthermore, the area in the immediate vicinity of the property has recently seen an influx of significant investments that have further improved the residential, hospitality and retail appeal.”
The space will continue as its flagship with “the added opportunity for office premises and storage for the group,” Prada said. “Currently, it is the intention of the purchaser to use the property for its own purposes.”
Prada detailed the transaction in a statement to regulators in Hong Kong, where the company’s stock trades.
