Action — hopefully — at 1 Hudson

Curious if anyone has any clues about what could be going on at 1 Hudson, which now has the word DRONE on its front doors. The bit of intel I have is that the ground floor space appears to be a not for profit art gallery/installation.

This could just be another case of false hope: in July 2019 I was equally excited when it seems they were readying the space for something.

Acappella, which had been in that space for 23 years, left in 2017, and while there were always rumors that they could be taking another space in the neighborhood, it never materialized. Acappella West, which opened in 2016 in Edgewater, NJ, seems to be closed permanently.

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  1. I’m still unclear on why it is in a landlord’s financial interest to keep a retail space empty for four years rather than lease it out at a rate lower than the landlord would ideally prefer. I think it is related to business expense deductions but am not sure. Can anyone illuminate?

    • With respect to this location, apparently an artist named Holton Rower bought the co-op unit some time in 2017 or earlier. A DOB application lists him as “unit owner” and the scope of work as “GENERAL RENOVATIONS INCLUDING DEMOLITION AND ERECTION OF DRYWALL PARTITIONS, PLUMBING AND MECHANICAL DEMOLITION.” Presumably this is who wants to open an art gallery.

      Permits were pulled in February 2018, so you would have to ask Mr. Rower what the source of the delays is. It does not seem like this is a “warehoused” retail space. That said, since the premises is listed on the certificate of occupancy as use group 6 retail and the proposed use sounds like use group 17 art gallery, it is unclear whether the C of O will need to be changed for the intended use.

    • Separately, it is never in the “landlord’s financial interest to keep a retail space empty for four years rather than lease it out at a rate lower than the landlord would ideally prefer.” There is no cost savings or magical deductions. If you did not work for 4 years, your taxes would be a lot lower because presumably your income would be a lot lower.

      That said, if NYC really cared about vacant storefronts, a good first step would be to pass a law to make minimum storefront rent clauses in mortgages void and unenforceable as being against public policy. However, it is a lot easier for simple minded politicians to sell the notion of greedy landlords rather than greedy lenders who have tied the landlords’ hands.

      The real “villain” in the scenario you describe–to the extent that freely contracting parties can be said to be villainous–is the mortgage lender who mandates a minimum monthly store rent as a condition of the mortgage. If a lease were signed for a lower rent, it is an acknowledgement that the value of the building is lower than the value against which the mortgage loan was made. That hurts the lender’s financial position.

      That is why a lender would write a mortgage making such a lower rent a default by the borrower under the mortgage. The lender is happy to have an empty storefront on the books at a higher potential rent, while the borrower pays the mortgage from his own pocket if need be.

  2. It would seem that landlord is in best position to decide what’s in his/her economic self interest.
    Furthermore, as a practical matter: how could NYC have authority to pass a binding law on what clauses a mortgage could contain?
    Why would the bank (or private party, i.e. former owner of property) issuing the mortgage have to comply?

    How would this be enforced? Pie-in-the-sky solutions may be fun, but reality is another story.

    • Please tell us all about reality. Cities and states pass laws all the time invalidating contract clauses for being unenforceable as against public policy. NYC just invalidated personal guaranty clauses in commercial leases for the duration of the pandemic.

      In this case, a lender would have to sue to enforce a default of the mortgage agreement for a landlord signing a low-rent lease. Then the judge would rule in favor of the landlord that there is no default because the minimum rent clause is unenforceable.

      Courts would not enforce a contract for excessive penalties, of perpetual duration, for an illegal cocaine sale, or an employment contract forbidding joining a union or taking medical leave, or a lease forbidding a blind apartment tenant from having a seeing eye dog, or a tenant agreeing with a landlord to deregulate a rent-stabilized apartment.

    • Here’s a state law affecting mortgage interest terms, i.e., usury:

      New York Consolidated Laws, General Obligations Law – GOB § 5-501. Rate of interest;  usury forbidden

  3. James, belated thanks for the insights and information. One piece I didn’t realize was that retail leases are often long — ten years — yet so many small businesses don’t survive that long. So I can see it being in the landlord’s interest to wait for a well capitalized tenant that can pay the higher rent.