NEW YORK -- A massive rent increase is threatening the future of a New York's iconic restaurant The Four Seasons, a sprawling, opulently furnished five-star eatery in midtown Manhattan whose very name is synonymous with the phrase "power lunch."
The impending rent spike could inflate the amount the restaurant currently pays for its 29,476-square-foot digs more than sixfold. Rent on the restaurant would climb to about $3.68 million per year, or $125 per square foot, once the business' lease agreement expires in late 2016. The restaurant's current lease has a base rent of $19.74 per square foot.
Those numbers are culled from documents related to a new mortgage on the building where The Four Seasons is located, 375 Park Avenue, the architectural gem also known as the Seagram Building. In March, the owners of that building took a $782.8 million mortgage against the property, which was financed jointly by bankers at Citigroup and the U.S. unit of Frankfurt-based Deutsche Bank.
Those bankers then turned to the task of repackaging that loan into smaller pieces, or so-called commercial mortgage-backed securities, which they are currently marketing to investors. As part of the sales process, the bankers have told potential investors and credit-rating agencies they expect the management of 375 Park to begin charging The Four Seasons rent at "market levels," deal documents show [log-in required]. The bankers determined $125 per square foot to be an appropriate asking price after surveying rents paid by groundfloor tenants on seven other Park Avenue buildings.
Alex Von Bidder, one of the co-owners of The Four Seasons, is no stranger to hearing pinstripe-suited bankers cutting deals at his restaurant's tables, where tycoons discuss billion-dollar transactions between bites of $56 crab cakes.
Yet Von Bidder told The Huffington Post he hadn't heard about this particular deal, as neither the bankers nor building management have approached him to discuss the potential rent hike. In fact, Von Bidder noted, the inquiry from this reporter was the first he'd heard of the topic.
"The rent negotiation is nonexistent at this point," Von Bidder said Wednesday.
Told how much the bankers were projecting he'd be asked to pay in rent after 2016, the restaurateur let out a hearty laugh.
Both Deutsche Bank and Citigroup declined to comment for this story, and RFR Realty, the building's owner, did not respond to repeated requests for comment.
Von Bidder would not comment specifically as to whether such a rent spike would put him out of business. But he did point out that "margins in the industry" could not sustain that kind of sticker shock.
The Four Seasons had gross sales of $17.5 million last year. Like many high-end restaurants in the city, the business has seen sales decline since the global financial crisis began in 2008.
Most New York restaurants in the same style as The Four Seasons -- decades-old establishments serving up traditional fare in palatial settings to the city's one-percenters -- have been driven out of business in disputes with landlords since 2008.
The Tavern on the Green, another landmark of American fine dining nestled in Manhattan's Central Park, filed for bankruptcy in 2009 after its lease was not renewed. The bankruptcy came in spite of sales exceeding $36 million that year. The Rainbow Room, an upscale restaurant and nightclub atop Rockefeller Center, served its last meal that year, unable to pay rent that The New York Times put at $8.7 million. The sumptuous Oak Room inside the Plaza Hotel closed in 2011 after the restaurateur who operated the venue was unwilling to pay a base rent of $1.2 million that was being demanded.
The Four Seasons does have one ace in the hole those other businesses lacked. In 1990, the restaurant's interior was designated a historical landmark by the city of New York. By law, the restaurant's iconic staircases, its dining room layout, its unique metal draperies -- even the Picassos that hang on its walls -- cannot be altered or moved. That limitation is likely to check the landlord's negotiating power, since kicking the restaurant out and setting up, for example, an Apple Store is not a possibility.
The New York City Landmarks Preservation Commission was not immediately available for comment.
Still, while The Four Seasons might be frozen in 1959, its current predicament is very much a product of high finance in the 21st century.
In 2006 and 2007, many bankers calculated expected rent increases when making commercial real estate loans and packaging them to investors. That meant expected rent increases were spelled out in black and white sometimes years in advance of the expiration of tenants' leases. The practice, technically known as "pro forma income underwriting," was rare after the market crashed in 2007, but has come back of late.
The Four Seasons is not the only tenant in the building that should expect to see rent increases in the coming years. Again, according to deal documents, bankers expect the management of 375 Park to raise the rents on 95 percent of tenants to between $135 and $145 per square feet over the next 10 years. Wells Fargo, the building's largest tenant, leases eight floors in the building and paid $95.91 per square foot on its rent last year.
Von Bidder said he found the bank's practice unusual and declined to participate in what he described as "negotiating rent in public, on the Web, two years in advance."
Challenged on the fact bankers had already set the negotiating process in motion for him, Von Bidder deadpanned, "Bankers always know what they're doing, right?"