Does Retail Need To Become A Loss Leader / Is Hudson Yards On Shakey Ground?

David Goldsmith

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Staff member
For quite a while retail rents skyrocketed and became the driving force behind many building purchases. In the last few years the pretty clearly overshot the mark, resulting in many vacancies and eventually a sharp correction in rents. Under the current dual crises of covid-19 and protests/looting we have extreme further pressures on retail businesses. But especially in NYC without first fixing retail how can we convince people that the downsides of living here are worth the costs?
Instead of recognizing the need for retail as a support for residential and office space, it looks like major holders of space might choose to cut and run. My question is what happens to places like Hudson Yards without retail? (And remember that many mall leases give smaller stores the option to cancel their leases if the anchor tenant leaves, and from what I understand Hudson Yards is no different in that aspect).
Related marketing Neiman’s Hudson Yards store as office
Developer shifting to Plan B as anchor works through bankruptcy

With Neiman Marcus in bankruptcy, the Related Companies is marketing the department store’s space at the Hudson Yards mall to office tenants.

Related and co-developer Oxford Properties are marketing Neiman’s 190,000 square feet and other retail space as office use, according to Business Insider. In total, the developers put 380,000 square feet at the top of the mall — or roughly 40 percent of the shopping complex — on the market.

A representative for Related declined to comment to Business Insider and a spokesperson for Oxford did not respond.

The move is a remarkable change in strategy for Related and Oxford, which once considered the retail component to be the most valuable aspect of their $25 billion Hudson Yards megaproject.

The developers spent $80 million building out the store for Neiman, which they used as an anchor to lure other retail tenants. Related and Oxford developed the adjacent office towers and sold some of those spaces off at-cost, figuring they would drive value at the development by filling the office towers with workers who would shop at the mall.

But the city’s retail market had suffered in the years since Related and Oxford hashed out plans for the complex, and the coronavirus shut down has made matters worse.

Neiman filed for bankruptcy earlier last month.
 

David Goldsmith

All Powerful Moderator
Staff member
Related halts payments to Hudson Yards EB-5 investors
In a letter, developer says the pandemic will impact the value of investments in the megaproject

Related Companies, one of the EB-5 program’s biggest proponents, is halting payments to such investors in Hudson Yards because of volatility caused by the pandemic.
In a letter sent last week, a copy of which was reviewed by The Real Deal, Related told EB-5 investors the project was facing a host of challenges, including delays and increased costs around the platform work at the site, as well as “extremely challenging conditions” in the residential condo market and the bankruptcy of its mall anchor tenant, Neiman Marcus.
As a result, the firm had “decided not to make distributions at this time.”
Related declined to comment on specifics, but a spokesperson said the distributions were optional, and all required payments had been made. The spokesperson blamed the decision on challenges to the wider economy, and said Related maintained a positive outlook about the program going forward.
The announcement illuminates deeper risks in the EB-5 program, which offers green cards to investors who put a certain amount of money into job-creating businesses in the U.S.
Referred to as the “crack cocaine of real estate finance,” the EB-5 program has poured billions of dollars into big developments. But in recent years, it has come under scrutiny for fraud, and some Chinese investors — the program’s biggest participants — have tried to get their investments back thanks to up to 15-year wait times for visas. Now, investors are vulnerable to fallout from the economic downturn.
“We deal with about 80 different projects right now and we are seeing, across the board — people suffering, projects suffering,” said New York–based lawyer Mona Shah, who specializes in EB-5 but is not involved with the Hudson Yards investors. “Anything real-estate related is having a problem.”

Related has been an avid proponent of the program for years, and even spent some $1.4 million in 2017 to lobby Congress against abolishing it.
In June 2017, the company pushed for $380 million in EB-5 money to pay for the platform over the rail yards and its 35 and 55 Hudson Yards buildings. The sum was on top of the $600 million in EB-5 funds it had already raised. Shortly afterward, the developers sought an additional $30 million in funding.
Last year, in an effort to tighten up the program, the government increased the minimum investment from $500,000 in high-unemployment areas — or $1 million everywhere else — to $900,000 in high-unemployment areas, or $1.8 million elsewhere.
In recent months, Hudson Yards has been hit hard by the pandemic, which shuttered retail stores, halted construction and all but wiped out the condo market.
The bankruptcy of Neiman Marcus, announced in May, cast further uncertainty over the future of the mall. Though the retailer has insisted that mass store closures are not part of its bankruptcy plan, Related and development partner Oxford Properties Group have begun marketing Neiman’s 190,000-square-foot premises as office space.
In its letter, Related said that while the investors’ money wasn’t tied up in the retail side of the mall, the effects of the pandemic could impact the value of their investments. The bankruptcy of Neiman Marcus, the letter added, “represents a disappointing statement as to the current state of retail in the United States.”
Shah said the EB-5 program at Hudson Yards had generated a lot of early hype, and many investors considered Related a safe bet.
The latest development, the attorney said, shows that “even the largest real estate projects have a very real risk.”
 

David Goldsmith

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Staff member

Bankrupt Neiman Marcus to vacate the Hudson Yards mall in New York

KEY POINTS
  • It has hardly been a year since invitees danced the night away and sipped champagne throughout a sprawling new Neiman Marcus department store in Manhattan, with the opening party featuring a special performance by Liza Minnelli.
  • The department store chain, in bankruptcy court, is now set to vacate the glitzy Hudson Yards shopping mall on the West Side in New York City.
It has hardly been a year since lucky invitees danced the night away and sipped champagne throughout a sprawling new Neiman Marcus department store in Manhattan, with the opening party featuring a special performance by Liza Minnelli.
Now in bankruptcy proceedings, the department store chain said in a court filing Thursday it is vacating the glitzy Hudson Yards shopping mall on Manhattan's West Side.
A Neiman Marcus spokesman said the company is closing its Hudson Yards location for good, along with two stores in Florida — Fort Lauderdale and Palm Beach — and in Bellevue, Washington.
"We are always assessing our store footprint to ensure it is optimal to enhance revenues, overall profitability, and our integrated retail strategy," the spokesman said. "These store closures will help ensure the continued long-term success of our business and underscores our unrelenting focus on providing unparalleled luxury experiences and engagement."
"A physical location in Hudson Yards is no longer an ideal space for us given the preponderance of restaurants and future office space in that mall," he added.

Hudson Yards, built by two of the world's largest real estate developers — Related Cos. and Oxford Properties Group — was temporarily forced shutter as part of the lockdowns to curb the spread of coronvairus. It was an especially hard blow considering the mall had just barely opened. It is still not fully reopen, but several tenants are offering curbside pickup.
Dallas-based Neiman Marcus, saddled with debt and hammered by the Covid-19 crisis, filed for Chapter 11 bankruptcy protection on May 7.
Related has been shopping the Neiman Marcus space for office tenants.
"It is unfortunate that Neiman Marcus was unable to achieve the success that other retailers have found at Hudson Yards and we look forward to welcoming the designer brands who drove Neiman Marcus' sales to their own stores in the retail center," a Related spokesman told CNBC in an emailed statement. "This opens up a great opportunity to create incredibly attractive office space with the largest floor plates available in New York City, a private ground floor entrance, and 18 foot high ceilings at 20 Hudson Yards."
 

David Goldsmith

All Powerful Moderator
Staff member
EB-5 investors to Related Companies: Open your books
“Perpetual state of nonpayment” feared after developer stops distributions

A group of Chinese EB-5 investors is pushing Related Companies to open its books after the developer halted payments in June because of the pandemic.
A lawyer representing 30 investors sent a letter July 16 to Related CEO Jeff Blau demanding an on-site inspection of the company’s financial records so investors could see whether Related was able to repay them. In a separate letter, they requested written assurances that their distributions would be paid.

The lawyer, Douglas Litowitz, said his clients were alarmed by news that Related was pausing distributions to EB-5 investors in Hudson Yards, and became even more alarmed when they dug into their contracts and realized that payments were considered discretionary.

“The investors fear that you have tricked them into a perpetual state of nonpayment,” Litowitz wrote in the letter, a copy of which was reviewed by The Real Deal. A lawyer for the developer replied that the investors had no rights to inspection — a point he argued was backed up by both the agreement and a body of prior cases.

Litowitz is calling for arbitration. Related did not respond to requests for comment. In June, a representative for the developer told TRD that the distributions were optional, and all mandatory payments had been made.

The dispute is yet another headache for Related, which is contending with slow condo sales, construction delays and the closure of its Hudson Yards mall on account of the pandemic. Compounding matters, Neiman Marcus last week announced that it was walking away from the site some 16 months after it opened as its anchor tenant. Related is now marketing the mall as an office location.

The EB-5 visa program is a system where foreigners invest money into job-creating businesses in the U.S. in exchange for green cards. Over the years it has been both hugely popular and rife with fraud — triggering a slew of lawsuits and intervention from the federal government.

Chicago-based Litowitz is a vocal critic of the EB-5 program, and specializes in fraud cases on behalf of Chinese investors. He claims his clients were told by an agency representing Related in China that they would be repaid after they got their green cards, and were not notified that payment was at the discretion of the developer.

But Daniel B. Lundy of Klasko Immigration Law Partners, an expert in EB-5 matters who is not involved in the Related dispute, said the United States Citizenship and Immigration Services prohibits agreements from outlining certain specifics about payments, meaning “the timing and amount of distributions to EB-5 investors is generally subject to the discretion of the managers [of the entity].”

“This is not to say that the manager has unfettered discretion,” he added. “It is still bound by the terms of the investment documents and any fiduciary duty it might have to investors.”
Related’s investment offering is unusual in one way: Litowitz said his clients invested through a preferred-equity model. That is less clear cut than the majority of EB-5 investments, which are set up as debt — the investors put money into a fund that makes a loan to a developer, and that money is repaid after the loan matures.

Litowitz said the model was central to his clients’ concern. “Since there is no loan date by which the money must be returned [to the entity], that makes the discretion all the more important,” he said.
“Otherwise it could be a perpetual investment — forever.”
 
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