Can someone give an explanation to this transaction?
How does the deal below make any sense for the buyer. Are they buying to lose money?
The sellers are having a field day... 50 million in 24 hours.
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This is another ball game of retail, how about this. The original selling price is $55 mil, assuming a cap rate of 5%, the NOI would be $2.75 mil, so around $450 psf net in rent would be what Louis Vuitton would have to have been willing to pay if they were about to sign the lease on the place (maybe add another $50 psf for $500 in gross rent psf).
So to make the store work $2000-$3000 psf in sales for Louis Vuitton - just an estimate but seems consistent with what they would be able to post? So $12 to $18 mil in revenue for the store, which is probably mostly profit given their COGS margin. I wouldn't consider a 10% - 20% return on the asset money losing.
They aren’t making 20% on their money. I appreciate the input but the math above is not correct. It’s more of a marketing play. Regardless if the bought the building or not, they would still be making the same amount of sales
Article I read on on it this AM - https://www.wsj.com/articles/lvmh-pays-high-price-for-rodeo-drive-prope… -quotes market rent at $875/SF ($17,550/SF is ~5% cap). WSJ also mentions the seller had the deal tied up under a ground lease which likely had a fixed-price option to convert to fee.
As for price LVMH is paying there are a couple of factors: rents for high street retail might not be justified with PSF sales, but having a presence in these top locations is almost an advertising expense for luxury brands. Other factor is that LVMH is probably going to occupy the space, and owner-users are not always looking at the economics the same way an investor would (long-term control, and flexibility to do to the space what they want might be more important than saving on rent).
If the partners knew they had a quick flip then I’m surprised they didn’t just use personal money.
If the partners knew they had a quick flip then I’m surprised they didn’t just use personal money.
It was a long-term ground lease with a right to purchase option. It sounds like The Sterling Organization had a right to purchase this asset at an previously agree upon price, which was well below market. Ground leases are typically much longer than a traditional lease so I doubt this was a quick flip.
They had a ground lease with a fixed buyout price, ground leases are typically 30 years + with an option at the end. If that option is in a contract it is like a stock option at the end where you either buy it or let it expire and the ground reverts back to the owner.
I think the better way to look at this is like they had an in the money call. Their option to buy the land was cheaper than the land was worth. So the exercised it and sold at the marketprice the next day.
Jay Luchs does all the high street retail deals in LA. He probably pre-negotiated it. Basically not a 24 hour deal.
Don't forget a lot of high end retail stops are simply loss leaders for the actual brand. You are paying for marketing essentially in these high traffic areas ie. Rodeo, and 5th Ave.
Yeah, that is also what LVMH is in the business of buying. I think their business model is 1.buying the most expensivest shit (Brands/ RE) 2. something 3. something 4.profit.
They also were the buyer in summer 16 when Bijan sold his palace on Rodeo.
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