Billionaire retail investor bought one property from struggling Sterling Optical for $1M
By Adam Pincus
In final days of 1990 Jeff Sutton was not yet a billionaire investor, nor was he routinely described as a “retail maven” in the press. He was just 30 years old, a recent graduate of the Wharton School at the University of Pennsylvania. He had not yet scored a significant property purchase of his own.
Then on the day after Christmas, 28 years ago, he made a $1 million acquisition in Downtown Brooklyn, his first big buy. The property was a modest, four-story building at 461 Fulton Street, with 19.5 feet of frontage and totaling 2,516 square feet. Yet it was, by all measures, a sweet deal.
He sold that building, a low-value but significant biographical milepost, last year. He sold it in September, along with three other buildings on the same block, for $22 million, to the Laboz family’s United American Land. That retail and residential-focused family already owns several other properties on that block, indicating an assemblage in the works. For more on that, please see the related article.
Sutton’s building sale is not significant in the tens of billions of dollars sold each year in New York City, nor does the sale of a minor asset impact his extensive portfolio. But he’s an investor who rarely sells, and here he did.
Sutton has accumulated a retail collection of more than 100 properties, including along Fifth Avenue, in Times Square and Soho, that The Real Deal estimated last year took in $439 million in annual net operating income. That would yield a value of approximately $9 billion. At the same time, Forbes pegs his net worth at $4.3 billion. Yet as Sutton’s first major acquisition, this deserves some analysis. He did not respond to a request for comment for this article.
Back in 1990, the Fulton Mall retail stretch was bustling with foot traffic, but not like it is now. Today the broader neighborhood is undergoing a spasm of development, with thousands of new residential apartments under construction.
Nearly 30 years ago the nation was in the midst of a recession, and one of the victims was Sterling Optical, which was bruised by a retail environment with intense competition from rivals such as Pearle Vision.
The firm lost money in 1988 and 1990, and was looking to sell assets. Sutton had been buying leases, and one of those was for a Sterling Optical location. The basic play was he would gain control of the lease, strike a deal with the landlord and strike a separate deal with the tenant. He would pocket the difference between what he earned from the tenant and what he paid to the landlord.
That relationship with Sterling led to a conversation about 461 Fulton Street, which Sterling had owned since 1969. Sterling, like many public companies, was eager to book a sale before the end of the year, so it sold the building to Sutton for $1 million on December 26. At the same time, the company gave him a loan for $900,000, in a transaction known as a purchase money mortgage. Furthermore, Sterling signed a lease with Sutton that would cover the mortgage payments.
In effect, Sutton only had to put down $100,000, and Sterling would pay the rent, and the rent would cover the mortgage. Sutton was further protected in the event that Sterling could not pay their rent. In that case, he would not have to make mortgage payments, the mortgage documents reveal.
Ultimately, though, in under a year, Sutton got was he was really after, a credit tenant. Payless ShoeSource, a surging discount shoe retailer, was opening stores aggressively in New York City. It had a plan to open 100 stores. The firm signed a deal with him in October 1991, city records show. That was in the nick of time, as Sterling filed for bankruptcy two months later.
Sutton picked up the other three buildings he sold to United American Land over the next decades. The first was the adjacent building 459 Fulton Street, which city records show that Sutton and partners Steven Cohen, Ronald Haddad and Elliott Serure purchased for just $200,000 in August of 1992. However, it appears Sutton had a stake in that building going back to 1990, because the 1991 Payless lease includes this building as well.
In December 2002, Sutton paid $1.8 million for 457 Fulton Street, giving him three properties in a row. Then in 2008, he purchased 465 Fulton, separated from his three-building collection by one building owned by another landlord.
But to add a literary bookend to Sutton’s ownership, Payless, which has been in the location for 27 years, has itself filed for bankruptcy, announced in 2017. This location has been identified as one of the hundreds the retailer will be closing nationwide.
The Summary: Jeff Sutton, who rarely sells, sold the very first properties he acquired.
The Follow: What other properties will Sutton sell? What leads him to sell?