Ikea has tried twice to open small stores in New York City but failed, but the company is hoping third time will be a charm, this time on upscale Fifth Avenue.
Ingka Group, the world's largest IKEA franchise, has inked a deal with Extell Development to acquire a one-third stake in a new 1 million-square-foot office tower scheduled to open at 570 Fifth Avenue in 2028, the companies announced Monday.
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Extell and Inka did not disclose the size of Inka's investment, but a source familiar with the deal said Inka spent between $300 million and $500 million for the stake.
The deal was brokered by Gary Phillips and Will Silverman of Eastdil Secured, who declined to comment.
The Swedish holding company will be the preferred shareholder in the property and will own 80,000 square feet of retail space on the bottom floor, where it plans to open an Ikea store, Ingka said.
That's much smaller than the 6.5-acre branch Ikea opened in Red Hook, Brooklyn, in 2008, or the typical 400,000-square-foot warehouses the company has set up around the world.
But in recent years, Ikea has been trying to gain a foothold in urban centers, experimenting with more compact stores that sell only small items and larger furniture that can be delivered. But Ikea's efforts in New York City haven't been so successful.
A 17,530-square-foot store on the Upper East Side remained open for a short time before closing in 2021, while a 115,000-square-foot location at the Lego Centre shopping mall in Queens lasted just three years.
The small-store concept seems to be working for Ikea on other continents: Over the past five years, the company has opened new small stores in urban centers across Europe and Asia, including stores in Tokyo, Madrid, Paris, and London, and the company isn't giving up on the US.
Ingka plans to spend $2.19 billion to open 17 new stores in the United States by 2026, and is buying up struggling shopping malls across the country and breathing new life into them.
The company is now following the lead of New York luxury retailers, such as Gucci and Prada, in owning real estate on Fifth Avenue.
The Fifth Avenue development is part of a strategic effort to “bring IKEA closer to people in urban centers,” Javier Quiñones, the company's U.S. CEO, said in a statement.
“While plans for the IKEA store are still in the early stages, we are committed to delivering an inspiring experience that will fulfill the furniture dreams of many New Yorkers,” Quiñones said.
Extell purchased the development site at 570th and 574th Streets from SL Green Realty for $125.4 million in 2015, and the site has been the subject of various rumors of new developments ever since.
“We have spent nearly two decades building this project,” Extell founder and chairman Gary Barnett said in a statement. “With the generous cooperation of Ingka Investments, we can move forward with the construction and leasing of New York's finest new office building.”
According to city records, the land at the corner of Fifth Avenue and West 46th Street is currently vacant, and Extell applied for a zoning change with the city to build a 78-story tower there in 2021. The change has never received full approval from the city, and it's unclear whether Extell will tweak its development plans.
South Korean financial services company Meritz Securities and South Korean asset management company IGIS funded the development, according to Extell and Inca, but the companies did not provide further details about the funding.
Spokespeople for Meritz and IGIS did not respond to requests for comment.
Abigail Nehring can be reached at anehring@commercialobserver.com.