Subject: Why your deli doesn't stand a chance (3 from Crains)
Developers put focus on retail
Move to maximize store space, court top chains; sell off leases as
By J. Alex Tarquinio
Published on April 03, 2006
Developer Joe Moinian is looking for a few good retail tenants to
occupy 200,000 square feet in his residential tower on the corner of
West 42nd Street and 11th Avenue. What's unusual about his quest is
that the building doesn't exist yet. Mr. Moinian, who just bought the
site last year, doesn't expect to complete construction until 2008.
In New York's superheated retail market, however, developers aren't
taking any chances. Retail space, once little more than an
afterthought, is being marketed early and aggressively. Additionally,
developers are putting more time and money into the space's design to
enhance its appeal and maximize rentable areas.
Mr. Moinian's building will have not one floor, but three levels of
"Demand is so great now that we'll go above and below ground," says
Daniel Gohari, director of commercial assets for the Moinian Group.
At blended asking rents of $75 a square foot for the project's retail
triplexes, the packages of basement, ground- and second-floor space
could generate a cool $15 million a month in rent.
To tap into that gusher, developers have elevated their marketing
"They're getting better at communicating the value of a neighborhood,
the pedestrian traffic flows, the trendiness," says Gene Spiegelman,
a retail broker at Cushman & Wakefield.
National chains are the holy grail for landlords. Such tenants have
impeccable credit ratings and can be counted on to stick around for
the entire lease term--something that can't be assumed with
independent retailers or restaurants.
"Once a bank, a Starbucks and a drugstore take a block-front, you're
done," says Gary Trock, a retail broker at CB Richard Ellis. "It's
gone for the next 15 years."
Those high-grade, long-term leases are so attractive that some
landlords are packaging them for resale as turn-key retail
condominiums. Pension funds and foreign investors have been active
"For an investor, owning a retail condo that's leased up for the next
15 years--that's almost like clipping coupons," said Jeffrey Roseman,
a retail broker at Newmark Knight Frank. And it's a quick way for
landlords to convert an asset into cash that can be plowed back into
the next project.
Marketing to investors
The luxury condo high-rise that Clarett Capital finished last year at
2770 Broadway, between West 106th and 107th streets, is a classic
example. Clarett leased out all of the retail space--about 7,500
square feet--to Bank of America and Lenscrafters for about $150 a
square foot. Clarett then turned around and sold the package as a
retail condominium for $18.6 million to an unnamed private investment
group in Atlanta.
Rents have risen so much, so quickly, that landlords are marketing
space that's already occupied. For example, the Moinian Group is
shopping around part of the cavernous, 50,000-square-foot Bank of New
York branch at 530 Fifth Ave., at West 44th Street, even though BoNY
has almost three more years on the lease.
"The bank doesn't need all that space," says Mr. Gohari, who has cut
a deal with BoNY: It gets to reduce its space, and Moinian gets to
lock in years of income at today's stratospheric rents. The landlord
will ask for a blended rent of $200 a square foot for space in the
basement and on the ground and second floors.
"The timing is impeccable, if we find the right tenants, to do
something with this space now," Mr. Gohari says. He notes that the
high-end shops--and rents--that have long flourished along Fifth
Avenue north of Rockefeller Center to Central Park have been inching
south in recent years.
Rents have doubled and even tripled in some areas
Published on April 03, 2006
Redefining the top tier
Nowhere are rents giddier than on Fifth Avenue from Rockefeller
Center up to 59th Street. Just five years ago, a prime location on
that desirable strip could be had for the then-astronomical sum of
$400 a square foot.
Since late last year, when Abercrombie & Fitch signed a lease at 720
Fifth Ave. for more than $1,000 a square foot, asking prices nearby
have jumped to more than $1,500 a square foot, brokers say.
"And I don't doubt that someone will pay that," says David LaPierre,
the head of retail services at CB Richard Ellis.
At such prices, a cramped, 20-by-50-foot space would command a
staggering $18 million in annual rent. Those rents threaten to become
commonplace as companies from Fendi to Nokia pony up for a window or
two on the street.
A magnet for jewelers
Madison Avenue between East 57th and East 72nd streets has long been
expensive, but in the past year rents have crashed through the
"Leases are now routinely breaking the $1,000-per-square-foot level,
[and] they never even approached $800 a year ago," says Faith Hope
Consolo, chairman of retail leasing and sales at Prudential Douglas
Sermoneta Gloves became one of the first tenants to pay the bigger
bucks, signing a lease at 609 Madison Ave. late last year for more
than $1,000 a square foot, Ms. Consolo says.
The Gold Coast has become a magnet for upscale jewelers, in
particular. Those blocks, home to a handful of fine-jewelry stores 10
years ago, are now lined with 18 such shops.
"The high rent--just under $1,000 per square foot--did give us
pause," says Hillary Beckman, the chief operating officer of Lockes
Diamonds, which took space at 683A Madison Ave. last September. "But
if you're doing high-end jewelry, you need to be there."
Circling Times Square
When Toys "R" Us leased space for its superstore in Times Square
three years ago, brokers were amazed that the square footage went for
$300 a square foot. But last year, when Bank of America won the
furious bidding for 5,000 square feet at 1515 Broadway, the price tag
was $515 a square foot.
Times Square has become a prime district in recent years, second only
to Fifth Avenue for its appeal among national retailers.
"1515 Broadway makes a very strong statement for BofA," says Jeff
Barker, the company's head of banking for the Northeast region.
"Placing ourselves so prominently in Times Square announces to the
country and the world, `We're here.' "
Space is now on the market for $600 to $700 a square foot, according
to Jeffrey Roseman, a retail broker at Newmark Knight Frank. Now that
national retailers have caught on to the appeal of Times Square and
the revenues generated there, the talk is that it will be the next
area where space goes for $1,000 a square foot.
In from the cold
Uzi Ben-Abraham, president of apparel retailer Scoop/NYC, signed a
lease in the meatpacking district last year thinking that the price
of just under $100 a square foot was high for an area where three
years earlier landlords had been lucky to get $60.
The executive recently went looking for a second location in the
meatpacking district and got a big shock: Asking rents have nearly
tripled. "Even at those levels, we still can't find anything," says
Mr. Ben-Abraham, who has lost out in bids for several locations in
the white-hot neighborhood.
Soaring store rents
Huge run-up reshapes New York's shopping landscape; many local
retailers face being priced out of prime locations
By Andrew Marks
Published on April 03, 2006
The vast bulk of California Pizza Kitchen's outlets are on the West
Coast, but lately it hasn't seemed that way to Mark Frankel, the
chain's real estate director. He's spending most of his time right
"New York is a great market for us," says Mr. Frankel, who recently
opened one store and has already signed leases for several more. "We
feel it's important to be here, and we're not afraid to pay for what we
Mr. Frankel's words might very well serve as the rallying cry for the
legions of retailers, from pricey international boutiques to discount
apparel stores and trendy grocers, that are swarming into the city.
"I've never seen anything like this," says Faith Hope Consolo,
chairman of Prudential Douglas Elliman's retail leasing and sales
division. "Retailers along every point of the spectrum want to be
here, and many of them don't seem to care how much they have to pay."
In the last three years, as residential and commercial rents have
crept up at single-digit growth rates in most locations, retail rents
have rocketed upward. In places such as Columbus Avenue and TriBeCa,
retail rents have doubled, according to data from CB Richard Ellis.
In other areas, including the meatpacking district and Bleecker
Street in the West Village, they have actually trebled.
"New York is now recognized as the place to be, from planting your
flagship store here for recognition and advertising purposes to the
straight bottom-line appeal of seeing huge sales volumes," says
Robert Futterman, president of Robert K. Futterman & Associates.
But New York has also become something else--the place where an
increasing number of retailers and restaurateurs literally cannot
make a buck. "I could sign a lease for $20,000 a month, but I would
be signing my suicide note, says Maria Lohmeyer, who recently lost
her lease for the Swiss restaurant she had run for 25 years on West
48th Street and who has been searching fruitlessly for months for a
location she can afford.
Some observers say that in top locations, where rents now exceed
$1,000 per square foot, few stores can ever hope to turn a profit.
High-end jewelry stores, with smaller space needs and nosebleed
prices, are a notable exception--which is why they are proliferating
in places such as Madison Avenue.
Uzi Ben-Abraham, president of fashion retailer Scoop/NYC, has opened
five stores in Manhattan in the last three years. He wants to open
more, but he's finding the task all but impossible.
"Retail rents are out of control now, and they are pushing the
smaller independent retailers out of Manhattan," he says. "All the
big national chains are coming in here, and they don't care if the
rents are crazy, they just want to be here."
Many brokers date the onset of the price rise to early 2002. It was
then that banks led by Commerce, Washington Mutual and Bank of
America began nearly simultaneous expansions throughout the city. The
frenzied competition drove up prices for prime corner locations and
lit the fuse on a wider price explosion in the last two years as the
banks were joined by an army of national retailers.
Genesco, a Nashville-based specialty retailer with more than 1,700
stores, is a prime example. "We're principally a mall-based retailer
and had a minimal presence in Manhattan," says Bob Dennis, Genesco's
chief operating officer. Recently, the company has switched, opening
eight stores in the city and even now looking for more.
That is despite a rocky start in Manhattan two years ago, when the
company went shopping for a site for the flagship of its Lids
hat-wear chain in Times Square. Rents of more than $350 per square
foot shocked the company's managers, but so did the eventual sales
"The volumes we do here are incredible compared to elsewhere," says
Mr. Dennis. "We learned you can't set limits on rents in the city the
way you do elsewhere."
Even so, he estimates that Genesco has lost out on about twice as
many leases as it's signed because there's so much competition. "We
were all set to go on a store on lower Broadway, and then Verizon
shows up and they're irrational in terms of what they're willing to
pay," he says.
In recent years, that lust for retail space has also shed its
traditional geographic bounds. The scramble has been just as evident
on 125th Street as it has been on Madison Avenue.
"Retailers are flooding into neighborhoods they'd never had an
interest in before," says Patrick Breslin, head of the retail group
at GVA Williams.
In the latest wrinkle, more and more of the bidders have distinctly
foreign accents. "Luxury international retailers now feel they
absolutely have to be here," says Andy Khan, a retail broker at
Cushman & Wakefield Inc.
BANKS TAKE TOP SPOTS
When apparel retailer Eddie Bauer left behind a 6,000-square-foot
store on the corner of East 69th Street and Third Avenue last year,
the location drew strong interest from retailers such as J. Crew and
Ann Taylor. Then another crew of bidders turned up, each wielding a
"At the end, there were five banks bidding for that corner, and the
clothing stores were shut out," says Faith Hope Consolo, chairman of
Prudential Douglas Elliman's retail leasing and sales division. The
space went to Chase for more than $400 per square foot.
That scene has been played out in every borough in the city in the
last four years. Brokers say that eight banks, including Chase,
Wachovia, Bank of America, Commerce and North Fork, have added dozens
of branches--all in prime locations and at rents that have redefined
"The banks have done a lot to create this high-demand market for
retail space," says David LaPierre, head of retail services at CB
In the booming Manhattan market, the banks' impact has been the most
dramatic in residential neighborhoods--particularly upper Broadway
and Third Avenue in the East 60s and East 70s.
"Three years ago, deals were being done at $200 per square foot in
those neighborhoods," says Ms. Consolo. "Then the banks started
gobbling up every vacant space, and it drove the market wild, pushing
prices to over $400 per square foot."
And the pressure is still on.
"Our strategy calls for a continuance, if not an acceleration, of our
current branch opening pace," says Jeff Barker, head of Northeast
region banking at Bank of America, which has opened 19 branches in
Manhattan since acquiring Fleet Bank in September 2004.
Mr. Barker says the soaring rents that the banks themselves have
helped fan will not slow down BofA's pace.
"We see how high rents have gotten, but it doesn't deter us at all,"
he says. "Even at these levels, our banking centers are very
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