Everything’s coming up roses for the Shubert Organization.
As the Broadway landlord begins to reopen its 17 Broadway theaters for the first time in 18 months during the COVID-19 pandemic, it will also receive more than $82.3 million from a blockbuster real estate deal. Shubert recently agreed to sell two vacant lots on Eighth Avenue and the air rights above the Imperial Theatre to a real estate developer, Extell Development Company.
The sale of the air rights for $51,215,861, eclipses the previous record of $41 million set in 2017 when Shubert sold the air rights above the Cort Theatre.
When the company previously turned thin air into millions of dollars, its clever accountants took advantage of a tax rule to postpone paying any capital gains taxes. Known as a “Starker exchange,” if a business takes the money that it receives from selling a piece of real estate and exchanges the money for another piece of real estate, then it will only pay capital gain taxes when it sells the second piece of real estate.
“By strategically conducting an exchange, you can scale up, [and] diversify your real estate portfolio by type of property and geography,” explained Jeff Rhode, a commercial real estate investor. The tax trick “provides a wide range of potential benefits,” he stated.
Shubert has certainly diversified its real estate portfolio beyond Broadway theaters.
In 2017, the Broadway landlord exchanged the $17.1 million it received from the sale of air rights above the Majestic Theatre for a Chase Bank branch and a Bank of America branch in Illinois. It also swapped its proceeds from other air rights deals for some McDonald’s and Kentucky Fried Chicken stores in Georgia.
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While Shubert executives declined to discuss how the money from its big pandemic payday will be used, Extell confirmed that the land and the air rights will be used for a mixed use development. The real estate developer spent over $186 million piecing together 11 parcels of land on the site since 2014, and paperwork filed with the government suggests that the new building between 45th Street and 46th Street will be a 40-story hotel with three observation decks.
While Extell plans to break ground on the site within the next year, it promised to halt all construction during performances at the Imperial Theatre next door. The $16.75 million musical Ain’t Too Proud is scheduled to resume performances there on Saturday, October 16.
According to Julio Peterson, Shubert’s vice president of real estate, the company considered constructing a new Broadway theatre in the space over a decade ago. But, after the economic downturn in 2007, Shubert abandoned its plans for the site.