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By Esther Fung 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (March 30, 2018).

A unit of LVMH Moët Hennessy Louis Vuitton paid $110 million, or around $17,750 a square foot, for a store on Los Angeles's ritzy Rodeo Drive, in a sign that values of property in the country's most fashionable shopping districts haven't succumbed to the malaise hitting retail real estate.

The seller of the empty, 6,200-square-foot, single-story building at 456 N. Rodeo Dr. was Sterling Organization, a real-estate private-equity firm based in Palm Beach, Fla. Sterling had purchased the property recently for $55 million, according to president and chief executive Brian Kosoy.

LVMH, which has a portfolio of upscale brands including Louis Vuitton and Loewe, owns two other stores on Rodeo Drive, where lavishly decorated stores cater to a clientele of big spenders.

The Paris-based company didn't respond to a request for comment.

The deal is a sign that investors are still willing to pay top dollar for real estate along tony strips -- known as "high streets" in the retail world -- despite the carnage taking place across the retail industry. The values of many other types of retail property have been falling as brick-and-mortar stores fail and contract, and competition from online shopping continues to mount.

In the 12 months to February, the property values of malls and strip centers fell 11% and 6% respectively, according to real-estate research firm Green Street Advisors' Commercial Property Price Index.

Earlier this week, Brookfield Property Partners LP reached a deal with GGP Inc. to buy the remaining stake of the mall company that it doesn't own, for a lower than expected price. The deal, which is subject to a shareholder vote, sent new shock waves through the retail world because GGP owns some of the most upscale malls in the country.

But, so far, some high streets have avoided major damage. Demand for these locations remains healthy from the world's top retailers for branding purposes, even if they don't generate high sales.

"On the West Coast, it's all about those three, high-value blocks of Rodeo Drive where the world's premier luxury brands must have a presence by planting their flag," said Sterling's Mr. Kosoy.

Retail rents on Rodeo Drive in 2017 were $875 a square foot a year, the second highest in the U.S. after upper Fifth Avenue in New York, according to a November report by real-estate services firm Cushman & Wakefield. Rodeo Drive rents in 2016 were $800 a square foot.

Upper Fifth Avenue rents stayed constant at $3,000 a square foot between 2016 and 2017, the report said. "Most retailers are not turning their backs on high street locations," the report said.

Sterling got involved with 456 N. Rodeo Dr. in October, when it signed a 30-year ground lease with rights to purchase. The firm initially planned to sublease the building and eventually buy it. The former owner of the property was the Karl B. Schurz trust, according to real-estate data firm Property Shark.

Sterling's earlier-than-expected property purchase coincided with the death in January of Karl Schurz, according to a person familiar with the matter. Mr. Kosoy declined to elaborate on the details.

"When a circumstance presents itself to acquire a Rodeo Drive property, you aggressively pursue it, regardless of the complications involved in getting a deal done," said Mr. Kosoy.

A representative of the Karl B. Schurz Trust declined to comment.

LVMH already owns 319-323 N Rodeo Dr. and 420 N Rodeo Dr., which it purchased in 2012 and 2016 respectively, according to data from Real Capital Analytics.

Corrections & Amplifications Sterling Organization is based in Palm Beach, Fla. An earlier version of this article incorrectly said it was based in Palm Springs, Fla. (March 29, 2018)

(END) Dow Jones Newswires

March 30, 2018 02:47 ET (06:47 GMT)

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