- Neiman Marcus' shocking exit at the Hudson Yards will deal a large financial blow to the $25 billion mega-project's developers.
- Many tenants in the project's 1 million square foot mall have co-tenancy clauses that will allow them to pay next to nothing now that Neiman is out.
- Other retail stores at the complex such as Brooks Brothers have also filed for bankruptcy in recent months, creating the possibility of further departures.
- Mall experts were surprised that Hudson Yards developers the Related Companies and Oxford Properties used co-tenancy clauses, a deal structure that many mall owners have been phasing out for years.
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Neiman Marcus' surprise exit from the one-million-square-foot mall at the Hudson Yards not only knocks out the glitzy retail project's headline tenant — it could also unravel profits for the remainder of the space.
Developers the Related Companies and Oxford Properties had used Neiman's presence as the mall's marquee occupant to attract other retailers to the 7-level property known as The Shops at Hudson Yards.
Many of those have co-tenancy clauses in their leases, several sources with direct knowledge of the terms say. Co-tenancy deals allow retailers to condition their occupancy or rent payments on the presence of an anchor tenant or collection of anchors that draw shoppers to a retail destination.
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If that anchor leaves, the clauses often permit occupants to forgo rent payments for their spaces and switch over to profit-sharing agreements in which they pay a percentage of their store sales to the landlord.
At The Shops, a percentage of sales could amount to nearly nothing as the mall remains closed under mandate by New York Governor Andrew Cuomo, who has barred enclosed retail spaces from reopening as the pandemic wears on and record numbers of cases surge in other states.
Experts say the dislocation wrought by the pandemic on brick-and-mortar retail shopping habits and sales could last for months, or even years, accelerating the deterioration of an already-troubled market that preceded the crisis.
"Customers are and will continue to shop differently than they did prior to the pandemic," John Wells, a spokesman for Neiman Marcus, said in a statement. "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."
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The store's departure strikes a blow to the $25 billion Hudson Yards project, where Related and Oxford once envisioned the mall as a centerpiece for foot traffic and tourism and an major amenity for the millions of square feet of office space they have raised and the thousands of units of built and planned apartments.
"This is an unraveling of the mall as they imagined it," said Yaromir Stein, a mall owner and developer in Columbus, Ohio.
Steiner said many mall owners across the country had begun to back away from co-tenancy clauses years ago out of a sense of recognition that traditional anchor stores no longer drove the bulk of mall traffic and left landlords vulnerable. He said he was surprised that Related embraced that deal structure at the Hudson Yards as it leased up the mall in recent years.
"It's old-thinking," Steiner said. "Department store anchored retail is 1990s thinking and it's was already a dying concept. This was a project that felt forced and didn't make sense in a lot of ways."
The departure of Neiman is even more painful for Related and Oxford considering the costly incentives they lavished on the company to agree to open a store at the Hudson Yards in the first place. The developers paid about $80 million to cover the cost of building out the interiors of Neiman's 190,000-square-foot store at the mall. The store was in operation for only about a year when the pandemic forced a lockdown of the city.
A Related spokesman diminished Neiman's importance to the mall.
"It is unfortunate that Neiman's 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's sales to their own stores in the retail center," the spokesman, Jon Weinstein, said in a statement.
Related has appeared to give up on the idea of leasing the space to another retailer and in recent weeks has been marketing a plan to convert Neiman's store and other ancillary shops into nearly 400,000 square feet of office space.
"This also 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," Weinstein said in a statement.
Related is facing other potential departures at the complex. Among the mall's tenants is Brooks Brothers, which recently declared bankruptcy. J.Crew, the parent of another tenant, Madewell, also entered into Chapter 11 in May. The Dallas-based luxury goods chain Forty Five Ten, occupies 16,000 square feet and faces an uncertain future as it has appeared to teeter on dissolution during the crisis.
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