Bullish on Borough Shopping
Jotham Sederstrom Nov. 10, 2010, 11:53 a.m.
Since 1984, the Toronto-based private-equity group Onex Corp. has raised funds through traditional equity streams and invested in assets throughout North America. In 2005, the firm started a real estate group, Onex Real Estate Partners. Among its earliest investments is Sky View Parc, an ambitious retail-residential project in Flushing, Queens. With 75 percent of the Muss Development project’s 800,000 square feet of retail space leased, the complex is expected to open later this week. Onex Real Estate Partners president Michael Dana chatted about the response from the retail brokerage community and his firm’s plans to expand business in New York City.
The Commercial Observer: Regarding Sky View Parc, why in heaven’s name would you choose Flushing of all places as the site of one of the group’s earliest investments?
Mr. Dana: It’s a very unique location in New York City. Really, outside of Manhattan, we think that Flushing is one of the most vibrant 24/7 communities in the entire city. If you just walk down Main Street on a weekend, or actually drive down Main Street on the weekend, it could take you an hour just to go three blocks. The huge concentration of humanity and the different prospering businesses–small retailers, small food stands, restaurants–it’s really an incredible economy in and of itself.
We looked at that market very closely for a couple years, trying to figure out how we could invest in it. As part of our due diligence we found that the market was very underserved, from both retail and residential perspectives. So this project really gave us a chance to bring in a transformational project to this marketplace, and there’s just nothing like it around. There aren’t that many sites in all of New York where you can take 14 acres and build a project of this magnitude.
In your initial investigation into the project, did Onex pinpoint other neighborhoods that were similarly underserved from both a retail and residential perspective?
Well, you find little submarkets that are potentially underserved for retail or for residential, none of which have that sort of 24/7 feeling to them. Anywhere else you go–whether Queens or Brooklyn or in the Bronx–you don’t find the kind of action that you find in Manhattan, but I think you do find it over there in Flushing. It really is a unique marketplace that really has three things we liked: It’s underserved in retail and residential, but it also has its own little economy happening right now.
Had Onex considered other areas before the group decided on Flushing?
Yeah, and our decision to invest in Flushing was not to the exclusion of anything else in New York. It was that we managed to notice in 2005 that there were a number of large projects in Flushing that were on the drawing board. Many of them, at least at the time, had some fairly substantial backing. So it drew our attention. We wanted to see why people were so focused on the area and what was going on. So we dedicated a lot of resources to it and became quite enamored with it. And, then, ultimately, we were able to form a partnership with Muss to be an investor in this project.
What’s the status of the project right now?
We have 75 percent of the retail committed. The retail is really broken into two pieces. We have the west retail, which is basically a traditional vertical big-box retail, and that has BJ’s, Best Buy, Bob’s [Discount] Furniture. We had a lease there with Staples. And, basically, it’s fully committed except for the top floor.
In the middle, you have a 2,500-space parking garage, which is pretty unique for New York. And then you have the east retail, which has a beautiful atrium entrance and more of a mall feel. It’s anchored by Target, but it has some very well-laid-out mall space. And committed there we already have Bed, Bath & Beyond, Marshalls, Old Navy, Famous Footwear, Payless Shoes.
On the lower level, we have a number of restaurants: Chuck E. Cheese, Applebee’s, Five Guys. We have Sky Foods, which is a 35,000-square-foot grocery store that caters to the local community–so a very good diversity of retail.
How in-demand was that retail space, what with retail suffering somewhat because of the recession and the project’s location pretty far outside of Manhattan?
Well, it’s really interesting. If you look at Queens and Long Island and that whole submarket, there’s really only one other shopping center in Queens, and that’s in Elmhurst, the Queens Center. It has the third-highest sales per square foot in the United States. Long Island, in general, only has seven malls, and, we think, is dramatically underserved from a retail perspective.
So if you look at our area, within three miles, there are 750,000 people who live there. It’s easy to get to, it has a tremendous trade area to draw from, and it’s an area that really doesn’t have much competition. So there’s tremendous traction for these retailers to be there. Most of the leasing that we have was done prior to breaking ground. At that point we really wanted to stop, finish the project and come back after it was up and running.
I imagine Onex was dealing with scores of retail brokers on the other side of the table. Did they all have the same confidence in Flushing that you guys seem to have?
Yeah. Each retailer is represented by a different brokerage firm, and we had Ripco Real Estate representing us and they’ve done a fantastic job, and I think they’re one of the premier retail firms in the area. And the big anchor stores here all continue to think that this center will be among their top three to five stores in their chains.
I understand that Onex is now looking to make further inroads into the New York area.
The company was formed in 2005. This investment in Flushing was committed to, initially, in 2006–so it was really one of our very first deals. But, that said, we also continue to be focused on opportunities across New York City–both development opportunities and existing assets where we think we can add value. New York is probably outperforming most of the United States. Certainly, core assets in all the major markets have performed extremely well. So, yes, we’ll be doing more here.