Saks Fifth Avenue facing eviction from Bal Harbour Shops for unpaid rent
Bal Harbour Shops has filed eviction proceedings against Saks Fifth Avenue, one of the luxury mall’s longtime anchor tenants.
In the lawsuit filed Aug. 17 in Miami-Dade Circuit Court, Bal Harbour Shops accuses Saks, which has been a tenant since 1974, of not paying rent since March 16, 2020, even though the store has been open and operating since May 18. The news was first reported by WWD.
The lawsuit claims that Saks owes nearly $1.9 million in unpaid rent and late fees. The store does not pay a fixed monthly rate. Instead, it pays a “percentage rate” calculated by monthly net sales as well as an “Additional Rent” to pay for common area expenses, real estate taxes and marketing efforts, according to court documents.
The decision to evict could leave the longtime luxury icon in a delicate position. Bal Harbour’s other anchor, Neiman Marcus, filed for Chapter 11 bankruptcy in May and recently announced it would close its Galleria store in Fort Lauderdale; last week, a Bal Harbour Shops spokesperson told the Herald its store would not be affected. The brick-and-mortar nationwide decline has accelerated this summer as brand after brand has filed for bankruptcy amid the COVID crisis.
“COVID accelerated the impact that online sales were having on brick-and-mortar retail,” said Lyle Stern, president of Koniver Stern Group, a retail leasing and consulting firm. “But that’s not to say brick-and-mortar isn’t doing well. What I see happening is a lot of post-litigation filings, pre-hearings, and chess-boarding going on. Landlords are figuring out how to work with tenants, while tenants are shedding some of their stores. Everyone is accessing their chessboard differently in order to survive this crisis.”
Still, Bal Harbour has sued Saks and terminated its lease.
“Bal Harbour Shops values its long-standing relationships with the businesses, large and small, that tenant its buildings,” said a spokesperson for the mall via email. “The unprecedented effects of COVID-19 have severely impacted us and each of our stores — and we have worked in good faith to help where and as we can — as we really are all in this together.
“But through this, three distinct groups of tenants have emerged: those that honor their obligations to the best of their ability and then ask for help after doing so, those that engage in productive discussions and then faithfully honor their revised obligations, and those that make a choice — often driven not by necessity but by a carefully calculated strategy — to intentionally default on their lease commitments and to seek to use the pandemic as a convenient excuse to evade their financial obligations.
“Regrettably, Saks Fifth Avenue seems to be such a tenant,” the statement said. “Saks’ extensive arrearages include long overdue rent that accrued pre-COVID as well as percentage rent on sales that occurred after Saks re-opened for business after the lifting of closure orders from County and Municipal governments. Yet, despite being given months to honor its past due rental obligations and despite Saks’ impressive post-COVID sales at Bal Harbour Shops, Saks steadfastly refused to make any effort to pay any part of its rent.
“Regrettably, this injudicious behavior has left us with no other option than to terminate the Saks lease and sue to evict Saks from Bal Harbour Shops.”
A dissenting opinion
A representative for Saks Fifth Avenue argued that Whitman Family Development, which owns Bal Harbour Shops, has not acted in “good faith.”
“Not only have they chosen not to adequately assume their fair share of the damages created by the global health crisis still gripping our nation, they have used the press and legal system to bully tenants,” the spokesperson wrote in an email to the Herald. “They are upset that Saks Fifth Avenue has not succumbed to their bullying and are continuing to inflict damage to our business and reputation with these actions. In this situation, we are looking forward to the legal system determining what is fair and reasonable for all parties.
“Saks Fifth Avenue has been working with our landlord partners across North America to amicably and logically share the losses incurred during the pandemic,” the statement said. “We and our reasonable partners agree that there are fair solutions to be had as we recover from this public health crisis. Unlike the majority of our landlords, unfortunately, this landlord was not willing to work with us on a fair resolution. For many years, Saks has been a significant part of the success of Bal Harbour Shops, and we expect to continue to be part of that success for a long time to come.”
On July 8, Saks was served with a default letter demanding payment of the owed rent or vacancy of the property. According to the lawsuit, Saks has not responded to either demand. Bal Harbour Shops has since terminated Saks’ lease.
On Aug. 4, Saks submitted a “COVID Rent Free Letter” to Bal Harbour Shops, claiming the store’s ability to earn profits had been “seriously undermined” by the forced closures during the initial coronavirus breakout.
The letter also stated that Saks was not obligated to pay rent until “all governmental restrictions cease” and “business returns to pre-COVID 19 levels.”
Booming business
Bal Harbour Shops countered by arguing that the store’s reported sales in June 2020 exceeded those reported in June 2019 and that the store had remained open for curbside pickup sales during the shutdown.
The lawsuit also cites the $18.5 million Bal Harbour Shops advanced to Saks for a major renovation to the store on Jan. 30, 2020. The mall scored a $500 million construction loan in 2019 for an expansion and renovation.
According to the filing, Saks has spent less than half of the $18.5 million in renovation costs.
Because the store has defaulted on its rent, Bal Harbour is asking for the remaining funds earmarked for renovation.
On Aug. 21, the ongoing case was moved to the federal U.S. District Court for the Southern District of Florida.
Legal experts say that $18.5 million advance, not the back rent, may be the thing that actually spurred the eviction.
“Here, you’ve got a tenant and landlord who would otherwise work things out,” said Jason Kellogg, a partner at the Miami-based law firm Levine Kellogg Lehman Schneider & Grossman LLP. “But the landlord is thinking ‘You’re sitting on all this money. Seems to us you should be using some of that money to pay the rent.’ The landlord might be worried that money is being put to other use.”
Retail woes
Pressure on brick-and-mortar retail from online shopping has been heightened by the COVID crisis. Since summer began, national brands including Stein Mart, Brooks Brothers, Ann Taylor and Men’s Wearhouse have filed for bankruptcy reorganization, following similar announcements earlier in the year by J.C. Penney, J Crew and Neiman Marcus.
While other major retailers — including Bloomingdale’s, Macy’s and Nordstrom — have closed under-performing stores, Saks continues to operate stores at Dadeland Mall, Town Center at Boca Raton, Palm Beach and West Palm Beach among its 40 locations in North America. But Saks has laid off an unspecified number of store operations employees as part of a strategy to “streamline and evolve,” according to an article in Retail Dive.
Although it was formerly publicly traded, Saks’ parent company, Hudson’s Bay Co., went private on Feb. 27, 2020. Shareholders sold their stock for $8.25 a share.
On June 9, the Sommerset Shoppes in Boca Raton sued Saks for unpaid rent totaling $89,444 for its Off 5th outlet on Glades Road in Boca Raton. Another mall, the Atlanta-based Regency Center, also sued Saks in July for non-payment of rent.
Analysts have predicted 25% of all malls may disappear within five years, leaving traditional malls scrambling to reinvent themselves.
Bal Harbour has long been one of the country’s top-grossing malls. Opened in 1965 as the first all-star luxury fashion shopping center, the 450,000-square-foot Bal Harbour Shops is home to more than 100 global brands including Chanel, Gucci, Missoni and Chanel.
In 2017, the mall announced it would build a three-story Barneys New York. After Barneys declared bankruptcy in August 2019, the plan was eventually scrapped.
According to the jewelry industry authority JCK, Bal Harbour Shops rakes in $3,185 in sales per square foot.
This story was originally published August 26, 2020 at 3:34 PM with the headline "Saks Fifth Avenue facing eviction from Bal Harbour Shops for unpaid rent."
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