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From Real Estate Weekly


Condo Converter being sued by Toy Center Tenants

By Daniel Geiger

A group of toy tenants in the International Toy Center have launched a lawsuit against the property's owner, Joe Chetrit, claiming that he is trying to muscle them out of the building by saddling them with the cost of metering their own electricity.

Attorney David Jaroslawicz, who is representing the roughly 25 tenants who have filed the suit, says that the cost of installing the wiring and systems needed to meter electricity could cost each tenant tens of thousands of dollars, an expense that would likely force some to leave the building, which,according to Jaroslawicz, is just what Chetrit wants.

Chetrit purchased the International Toy Center in early 2005 for $350 million and plans to convert it into residential condominiums, a process that ideally requires a vacant building.

"He's not just coming out and telling people to leave," Jaroslawicz said. "This is a more subtle technique. But it's still essentially harassment.

Jaroslawicz claims that Chetrit, who did not return calls seeking comment, has told tenants he needs to tear out the existing electrical system as part of the construction needed to convert the building. The suit is seeking to block Chetrit from dismantling the existing electrical systems or have him pay for the installation of the individual meters and electrical conduits that each tenant would need.

If the tenants are successful in their suit, it would likely grant them a stronger bargaining position to negotiate with Chetrit a buyout of their leases, the kind of compensation that many tenants claim Chetrit has not yet offered. While the Toy Center used to be home to over 200 toy tenants before Chetrit purchased the building, now only some 50 odd remain, many of whom are holding out because of the lack of affordable office and showroom space in the city. Most tenants have leases in the for rents that would be nearly impossible to in the current tightening real estate market.

The midtown south market, where the toy tenants currently reside and where they have expressed they want to remain because of its proximity to the Javits Center, has one of the lowest vacancy rates of any office market in the country.

"A lot of tenants have leases where they're paying below market rents, so of course they don't want to leave," Jaroslawicz said. "But they would if Chetrit was willing to buy them out. They're not trying to get rich here, they' re really looking for him to make up the difference between the rents they're paying now and the more expensive leases they would need to sign to stay in the city for the length of their current leases."

Although the toy industry, which has been looking for roughly 350,000 s/f of space in a bid to create a new Toy Center, has pledged to use its size to leverage better rents for its tenants, the industry continues to have trouble finding a new home.

Steven Greenfield, a tenant at 200 Fifth Avenue, one of the two adjacent buildings that make up the Toy Center, and leader of an organization representing toy tenants in their space search, said that the industry's broker, Barry Gosin, of Newmark, is in talks with a number of landlords for space close to Javits Center--where the toy industry holds its biggest expo every February.

"We're evaluating several options, one in particular that could work especially well for us," Greenfield said, declining to name which buildings the toy industry was focusing on because it could compromise ongoing negotiations. "We're a united group right now and everyone wants to stay in the city and we all want to find a home together and I think that we're going to find it soon."

Jaroslawicz, whose father worked in the toy business and who remembers visiting the Toy Center on numerous occasions growing up, didn't share Greenfield's optimism.

"Converting the Toy Center is going to kill the toy industry in New York City," he said. "They're going to wind up going to Dallas or Las Vegas or somewhere else that makes them a good offer because it's too expensive here. What's unfortunate is that the toy business brought tens of millions of dollars in economic activity to the city each year with its large expos and shows. Now that's going to be lost so a developer can make millions on condos."

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