Trump Organization Cuts Rent For Gucci, Its Largest Tenant, By An Estimated $7 Million A Year

[ad_1]

Donald Trump awaits the arrival of Turkish President Recep Tayyip Erdogan at the White House May 16, 2017 in Washington, DC.

(Photo by Win McNamee/Getty Images) Around the time the pandemic began, Gucci renegotiated its lease at Trump Tower, apparently taking the artist’s deal to the cleaners.

At the corner of Fifth Avenue and 56th Street in midtown Manhattan stands a storefront with three stories of glass windows. This is the kind of real estate that for years has attracted big-money buyers and, therefore, astronomical rents. But the market for such properties has soured, thanks to the rise of online shopping and the surprise of Covid-19. It hurts landlords in the neighborhood, including Donald Trump, who owns this particular location at the base of Trump Tower.

Gucci opened the gap in 2008, after agreeing to pay Trump about $20 million a year through 2026. No other tenant in Trumps portfolio has paid anywhere near as much money. Six years before that deal expired, however, the retailer renewed its agreement, apparently getting the best of its landlord. A new analysis of court documents suggests the Guccis’ annual rent has fallen from about $22 million before the pandemic to about $15 million today, affecting one of the former president’s most important streams. of money.

The renegotiation took place in 2020, although the exact month remains unclear. Covid-19 shut down the country in March of that year, creating enormous challenges for both Trumps presidency and for his real estate firm. In March and April, the president’s clubs and hotels furloughed or fired more than 2,400 workers. Even though Trump has passed the day-to-day management of his business to his sons Eric and Don Jr., the president is clearly aware of the issues. I wouldn’t say youe thriving when you decide to close down your hotels and your businesses, he explained from the White House briefing room.

With Guccis lease set to expire in 2026, Trump could ideally wait out the pandemic and then renegotiate the deal when the real-estate market stabilizes. But the Trump Organization is facing pressure to act more quickly. As of June 2020, the president’s personal balance sheets list just $93 million in cash on hand, and he owes $100 million against Trump Tower as part of a loan that expires in September 2022.

Donald Trump joins Gucci executives at the February 8, 2008 ribbon cutting for the retailer’s Fifth Avenue flagship at Trump Tower.

Photo by NEIL RASMUS/Patrick McMullan via Getty Images

Instead of trying to pay off the debt with cash, the Trump Organization decided to refinance, making Gucci’s lease an important concern. The Guccis estimate that $22 million in annual rent represents about two-thirds of the money flowing into the building. The next largest tenant is likely paying only $2 million a year or so. Any lender would definitely prefer to get comfortable with Gucci’s lease before extending a new loan.

Having leases that are due before the maturity date of what you’re trying to negotiate is a big problem, especially if two-thirds of the buildings cash flow, says Nancy Wallace, an expert on mortgage at the University of California, Berkeleys business school. So you’ll want to have a longer lease because I can’t imagine any bank will talk to you without that lease.

It makes sense, then, that the Trump Organization would be willing to trade big rent in the short term for stability in the long term, re-doing the deal at what seems like one of the worst times imaginable. Gucci has promised to stay in place for another 12 years.

With its largest tenant firmly locked in, the Trump Organization continued to refinance Trump Tower in February 2022. Axos Bank took out a loan, offering a new $100 million to replace the late debt. We traditionally underwrite commercial mortgage loans based on current rents and current leases, including any lease modifications or extensions, a bank spokeswoman said in a statement.

Representatives for the Trump Organization and Gucci did not respond to requests for comment.

[ad_2]