The fate of the New York Madison Avenue flagship is moving closer to a resolution.
The retailer and its landlord, Ashkenazy Acquisition Corp., have been in arbitration for months but are still far apart on the terms for a renewal. An arbitrator was brought in last year to make a decision, which is expected shortly, according to real estate sources.
Once the arbitrator begins deliberating, a decision will be rendered within 30 days, sources said.
A spokesperson said the company would have no comment while the negotiations are still ongoing.
As reported, Barneys signed a 20-year lease on the property at 660 Madison Avenue between 60th and 61st Streets in 1999. When it expires next year, the retailer has the option to renew — but that is subject to market rate adjustments and the asking price is expected to skyrocket.
Barneys is reportedly paying $20 million a year in rent now and real estate sources said Ashkenazy is seeking to triple that to $60 million annually. Although the flagship is the jewel in the retailer’s crown, it’s still not willing to pay that kind of money, sources said — and may not be able to afford it, given the state of bricks-and-mortar retailing.
“They are very far apart in what they believe the value of the property is,” said one source.
As a result, Barneys is poring over its options, which include vacating the site completely or downsizing. The men’s store, for example, which has its own entrance on 61st Street, could be closed and the merchandise moved into the larger store on Madison Avenue, where the women’s floors could be scaled back to make space.
Over the years, Barneys has been leaning more toward merchandising men’s and women’s wear together. In addition, the retailer has been leaning more heavily on smaller units. In 2013 the company converted its Co-op stores, which were smaller and focused more on lower-priced merchandise, into mini full-line stores. It also opened a 57,000-square-foot “flagship” in its former downtown home on 17th Street and Seventh Avenue in 2016. The Madison Avenue store is 230,000 square feet.
In addition to its Madison Avenue and Chelsea locations, Barneys operates flagships in Beverly Hills, Chicago, Seattle, Boston, San Francisco and Las Vegas. There are 15 other smaller stores and outlets across the U.S.
If Barneys does vacate the Madison Avenue location — which apparently neither the retailer nor its landlord want — it would create a huge void on the already struggling avenue.
Manhattan in general has been the victim of retail malaise as the Internet continues to take its toll on bricks-and-mortar, with a slew of empty storefronts on once-popular retail strips.
However, rents are starting to come down. According to the real estate firm CBRE, rents on upper Madison Avenue for ground floor spaces have dropped from a high of $1,652 in the third quarter of 2015 to $1,239 in the first quarter of 2018.
Faith Hope Consolo, chairman of the Douglas Elliman Retail Group, believes that after all the negotiations, a compromise will be reached between Barneys and Ashkenazy.
“I can’t imagine the avenue without Barneys and I can’t imagine Ashkenazy would let them go,” she said. “After what’s going on with Lord & Taylor, maybe they’ll give up some space, but I think they’re going to work it out,” she said.
Lord & Taylor’s parent Hudson’s Bay Co. Inc. is selling its Fifth Avenue flagship to WeWork Cos. and will downsize to 150,000 square feet from 650,000 square feet after the 2018 holiday season.
Consolo said when Barneys opened on Madison Avenue in 1999, it “kicked off the revitalization of the avenue and changed the whole game. But with all the vacancies on Madison Avenue today, to lose such an anchor would be a disaster. “
She said Barneys could always relocate or move into a smaller location, but “this is the flagship. So I think they’ll make a creative deal. Ashkenazy is not stupid and won’t cause more bleeding.”
That being said, Consolo said there are a lot of deals currently being made on Madison Avenue, where rents have fallen from as high as $2,200 a square foot for prime locations three years ago to $1,000 to $1,100 today.
And tenants who do commit to open stores are getting a lot of perks, she said. These include a period of free rent, contributions for build-outs and a freeze in rent escalations.
She said that both Loewe and Prada’s Miu Miu division are actively seeking locations and men’s brands are especially popular. However, Dunhill is planning to exit its location at 545 Madison Avenue, she said, to focus on wholesale rather than retail in the U.S.