Pret A Manger, Facing Millions In Lawsuits, Is The Poster Child For Retail Landlord Limbo
At the southwest corner of Eighth Avenue and 39th Street, one of New York City’s dozens of Pret A Manger locations is sitting dark and empty, all its shelves bare. A sign on the door says it is temporarily closed through the end of the year while “we navigate these uncertain times,” and provides a QR code for the nearest delivery.
This particular location is just one of many in the city where Pret, as it is known, is being sued for unpaid rent. In a lawsuit filed last August, the owner of the building claims Pret owes nearly $200K in back rent and hasn't relinquished possession of the property. The attorney for the landlord, Ashkenazy Acquisition Corp., said the lawsuit is still pending.
In at least a half-dozen locations, the British grab-and-go concept, which makes its money on the bustling breakfast and lunch crowd, faces a similar fate, with city landlords claiming they are collectively due months in back rent. But with a moratorium on commercial evictions in place until the end of August and a sluggish leasing market, both sides are at something of a stalemate.
Meridian Capital Group President of Retail Leasing James Famularo told Bisnow he has been showing at least 12 closed Pret locations to potential new tenants, and he views the commercial moratorium lifting at the end of August as something of a ticking time bomb.
“That’s when all hell breaks loose, not only for Pret, but for a lot of other tenants that are in limbo like this,” he said. “Landlords, the vast majority of them are saying, ‘Hey, you know, find me a new tenant for the Pret store.’ We asked them if the store is available. And they said that they're going through the motions — whatever that means — but we assume it means that they're in court trying to get the stores back to possession.”
He declined to say the buildings with Pret locations for which he is looking for tenants, citing nondisclosure agreements.
Globally, Pret is in a battle to survive. A year ago, the company told its landlords in the U.K. the firm was in the “eye of the storm” and slashing the rent it would pay in order to survive.
In August, it announced plans to slash nearly 3,000 jobs. That same month in New York, the company filed a notice with the Department of Labor, stating that it was permanently laying off more than 180 furloughed employees.
By October in London, where most of the Pret stores are located, it was trying out new concepts like coffee subscriptions, selling coffee beans on Amazon and expanding delivery options in a bid to evolve. Still, 21 of Pret’s 63 New York City locations are closed, according to its website.
At 400 Park Ave., landlord WatermanClark sued Pret this month, alleging it owes the firm more than $466K in rent, from April 1, 2020, through the end of June this year. The location is listed as open on Pret’s website.
In January, the owners of 122 West 42nd St. lodged a suit claiming Pret failed to pay $662K in back rent and would continue to owe rent until it surrendered the property. A call to an attorney for the landlord was not returned, but Pret’s website shows the location is closed.
In February, Tishman Speyer sued Pret at 300 Park Ave., claiming the lease had run out months earlier and the eatery had been failing to pay rent since the summer, Commercial Observer reported. A representative for Tishman Speyer declined to comment to Bisnow on the matter.
A month later, Tishman Speyer filed another lawsuit against Pret, this time at 11 West 42nd St., claiming it owed more than $992K in rent and had failed to vacate the space on the termination date. The landlord's attorney declined to comment.
At 39th and Eighth, where Ashkenazy was one of the first landlords to sue Pret, the retailer filed a response to the suit in New York State Supreme Court in October. Pret's attorney, Jesse Schnider at Davis & Gilbert, wrote that the company denied the claims that it owed back rent because "its lease terminated as a matter of law on or about March 19, 2020 due to the Covid-19 pandemic."
A representative for Pret declined to comment for this story, as did an attorney for the firm. The grab-and-go chain hasn't recovered from the mass exodus of office workers, many of whom have not yet returned.
“Let's remember that Pret, their model was really to open stores in commercial business areas where the customer was the office worker and tourists, they were not in residential neighborhoods,” Compass Vice President Robin Abrams said. “If you look at Chipotle, they're on Third Avenue in the 80s, they're in a lot of different neighborhoods, not specifically business districts ... And so I think they've been able to sustain the business in many locations. I think for Pret, it's been harder.”
Just 12% of office workers have come back to their desks in Manhattan, according to a survey from the Partnership of New York released June 7, causing enormous economic ripple effects for the businesses around them.
On the whole, Manhattan Chamber of Commerce President Jessica Walker said her group is very concerned about what is coming if the moratorium lifts without a more comprehensive plan Aug. 31.
“Some businesses stopped paying rent in order to keep their doors open and survive the pandemic,” she wrote in an email. “Now that the city has reopened and state grants are flowing, businesses are better positioned to start paying down this debt. But we just don’t know how many more landlords are willing and able to make deals that will avert mass evictions and storefront vacancies.”
There are glimmers of hope on the horizon, however. This week, the CEO of Morgan Stanley said he would expect workers to be at their desks by September, and said he would “take a dim view of employees who did not work regularly in the office.” Goldman Sachs has already begun to bring people back to its Financial District offices.
A Partnership of New York survey found Morgan Stanley is not an outlier — 60% of Manhattan workers expect to be back by the fall. However, most are looking at using a hybrid schedule with employees at their desks three days a week.
While hybrid work may not result in a major reduction of office footprints, for auxiliary businesses like breakfast and lunch food services, the impact of the average worker coming to central business districts 40% less than they used to would be severe.
“Anybody who's located in the central business district is white-knuckling it until the return of tenants to commercial properties,” Alliance for Downtown New York Senior Vice President Andrew Bresau said. “We’d have to be deaf, dumb and blind not to be worried. But there are also reasons for cautious — and I stress the word cautious — optimism. But how quickly a healthier environment for the commercial market establishes itself is going to be an interesting question.”
Pret had been one of the beneficiaries of the demand for quick-service restaurants in the city, Center for an Urban Future Executive Director Jonathan Bowles said.
In 2011, there were 29 Prets in New York City, according to CUF, which tracks chains in the city. By 2016, that number had grown to 42. By 2019, there were 56 Pret locations in the city. The Center says there are now 40 in the city. (Pret’s website states it has 63 locations and lists 42 as open).
“The fate of Pret is going to go up and down based on the health of the office sector in New York, and the past year has been cataclysmic for the office sector,” Bowles said. “A lot of people are thinking that [the return to the office] is probably going to be closer to 80%, at least in the immediate future.”
But, it is not just the office, he said; the lack of tourism, which plummeted in the past 16 months, has brutalized stores like Pret. How quickly it comes back, and to what capacity, will also be make or break.
"I think what happens in the next six months, you know, it's gonna determine a lot,” Bowles said.