ALBANY — As the nation’s oldest department store chain circles the drain, the owner of Crossgates Mall is seeking more than $20 million in a lawsuit over the space the anchor tenant is vacating.
The complaint says Crossgates incurred $24 million in expenses to prepare the space for Lord & Taylor and gave it a cut-rate rent so as to secure a high-end fashion retailer that would attract an older, wealthier, more influential, mainly female clientele.
Founded in 1826 and a fashion retail icon by the mid-20th century, Lord & Taylor later lost stature as a series of owners bought and sold it in an era of rapid change and increasing challenge for brick-and-mortar retailers.
The current owner of Lord & Taylor filed for federal Chapter 11 bankruptcy protection in early August. It concurrently announced a store closure list that included the Crossgates shop and then gradually through August expanded the list to include all locations.
Liquidation sales are underway at the remaining Lord & Taylor stores and on its website.
Three LLCs associated with Crossgates Mall — PCC NewCo, Crossgates Mall General Company NewCo and Crossgates Mall DevCo — brought the suit Thursday against HBC US PropCo Holdings, formerly known as Lord and Taylor Holdings LLC, in State Supreme Court, Albany County.
The plaintiffs state and assert:
- HBC is guarantor of a commercial lease at Crossgates that extends through 2029 and contains an operating covenant that requires a fashion department store to be operated there through 2024.
- Crossgates invested over $23 million in its premises as part of the transaction, including a $14.5 million retrofit of the space that Lord & Taylor would occupy — the largest tenant investment ever for the region’s largest shopping mall — and agreed to a below-market rent for the 80,000-square-foot space.
- That rent is $80,000 a month, plus taxes insurance and common area expenses; as of the date of the lawsuit was filed, the tenant was $594,407 in arrears.
- Crossgates agreed to this because the presence of a fashion department store is critical to the mall’s competitive position and survival, as it caters to mature and high-income shoppers, traditionally female, who are influencers in their family and community; as such, the store benefits the mall as a whole and its individual merchant tenants.
- Fashion department stores are uniquely positioned to help malls survive amid the massive disruption that internet retail has caused to brick-and-mortar retail for the last decade, and that the COVID-19 pandemic has caused this year.
- Crossgates felt comfortable making such a heavy investment because HBC would unconditionally guarantee full compliance with the covenant and other terms of the lease.
- The Lord & Taylor at Crossgates will close on or before Dec. 31; under terms of the original agreement, HBC must ensure compliance with the covenant, and it has not.
- The covenant specifies the manner in which the retail space is to be operated and prohibits a low-end department store or discount store in the space.
- The guaranty states that discharge of the tenant from obligations in bankruptcy or similar proceedings will not remove the guarantor’s obligations under the covenant.
- The tenant filed for bankruptcy Aug. 2; soon after, it informed the mall that they intended to close that location; on Aug. 5 and Sept. 25, Crossgates demanded HBC meet its obligations as guarantor of the lease; HBC did not respond either time.
- Lord & Taylor parent company Le Tote filed a notice with the state Department of Labor advising of 34 layoffs to come over 14 days starting Dec. 31, 2020.
Crossgates is asking the court to:
- Declare that HBC is obligated to take action to ensure that a fashion department store is continuously operated in the premises through Sept. 12, 2024;
- Award monetary damages for direct and consequential costs arising from the closure;
- Order payment of $594,407 in rent and other expenses outstanding to date, plus any future unpaid rent charges, plus late fees and interest;
- Award damages for losses Crossgates incurred in complying with its side of the covenant, including the investments it made in the mall;
- Award attorneys’ fees and other costs and expenses.
Crossgates puts the damages at not less than $20 million.
Attorneys for HBC could not be reached for comment for this story. Attorneys for Crossgates did not return a request for comment.
In August, Crossgates sued several fashion retailers for not paying rent for their spaces while the mall was shut down. Court paperwork in those cases indicated the mall was charging them much more than it charges Lord & Taylor — $3 to $6 per square foot per month for the small to mid-sized shops, compared with $1 for the anchor tenant.