LVMH BATTLES OWNERS ON 598 MADISON LEASE
Byline: Sharon Edelson / Vicki M. Young
NEW YORK — Building a big corporate shrine can be a big headache.
At least it has been for LVMH Moet Hennessy Louis Vuitton. The French luxury conglomerate’s U.S. headquarters, including a Louis Vuitton flagship, still under construction at 17-21 East 57th Street, has been plagued by lawsuits, cost overruns and delays for more than a year.
The plans call for a 23-story tower with luxury retail space on the ground floor and a conference room on the roof called the “magic cube.”
LVMH, already embroiled in several legal actions with its partner in the venture — real estate broker Robert Siegel and his firm, RLJ Associates — is now battling the landlords of an adjacent building.
That building, at 598 Madison Avenue, on the northwest corner of 57th Street, could be connected to LVMH’s main tower.
LVMH, which hopes to open a store for another of its luxury brands in the ground floor space of 598 Madison, has sued the owners of the building to enforce an agreement that stipulates that its lease doesn’t begin until Chase Manhattan Bank, the current tenant, vacates the premises. Rent would be due 30 days after Chase moves out.
The lease was signed in 1996, but Chase hasn’t budged. In January, after the building’s owners — Jane H. Goldman, Allan Howard Goldman, Louisa Little and others — demanded that LVMH begin paying rent, the French firm went to court.
LVMH could have allowed the lease to terminate, but chose to hold onto the valuable property. The lease is for 49 years, at a $4 million annual base rent, according to court papers.
LVMH wants unspecified damages of not less than $1 million and a declaration that it is not obligated to pay rent until 30 days after Chase moves out.
The landlords could not be reached for comment.
“This is some of the top-quality space in the world,” said Bruce Ingram, chief financial officer of LVMH in the U.S. “As a result, it’s a tough area. You’re dealing with people who are pretty tough in that arena. They have a right to be because it’s valuable real estate.
“We’re resolving the issue,” Ingram said, referring to the corner property. “We have an issue with them, and they have one with us. The terms of the agreement are not viewed in the same way. But no one is sweating on this one.
“The other one is an issue,” he added.
Ingram was referring to LVMH’s ongoing battle with real estate broker Siegel, who entered into a partnership with LVMH to build its headquarters on Siegel’s property. The trouble began in December 1996, when Siegel filed a complaint against Louis Vuitton North America and its 1896 Corp. subsidiary, alleging fraud, among other charges.
In June 1997, contractors were owed $7 million and the partnership was threatened with foreclosure. There was disagreement over which party would procure a loan, but the two sides ultimately agreed to sign a mutually acceptable third party loan.
In July, the two parties agreed to begin arbitration to settle their differences. The arbitration, which could be decided by the end of this month, will determine whether it’s LVMH or Siegel who pays the cost overruns of the project. The final costs could be more than double the $30 million budget originally agreed upon.
Sources said RLJ may press its civil lawsuit against LVMH, regardless of the arbitration outcome. In November, a judge denied a motion by Louis Vuitton to dismiss the lawsuit, which was put on hold until after the arbitration decision.
In spite of everything, there has been progress. As of last week, the corporate tower had been built through the 19th floor and seven floors of the facade were in place.
“Over the long term, this has been, and will be, a cornerstone of Manhattan,” Ingram said. “[LVMH] has recently been accused of being overextended in Asia, and I point out that we made two very key investments in the U.S.: We are working on 57th Street and Rodeo Drive [where Louis Vuitton is building a flagship]. The American market is the biggest, even if we haven’t got our fair share of it.”